Rockwell Automation Aktie

Welcome to the 14th Annual Laguna Conference.

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I'm Toby Okwara, I'm part of the Morgan Stanley multi-industry research team. Happy to have Rockwell Automation here, Blake Moret, CEO; and Tessa Myers with Intelligent Devices.

So thank you guys for being here. Starting off, just looking generally with some of the longer-term trends impacting the company. How customer conversations kind of changed now compared to last year with some of the progress around reshoring and bringing and investments in manufacturing?

So I think the tone is generally optimistic. To be sure, there's a lot of tailwind. There's a lot of headwinds. And I'm sure we'll talk about inflation and tariffs and so on. But the underlying tone from our customers is distinctly positive.

Our home market, North America is the best place to be investing now to be sure. We're enjoying some of the growth from data center but in our traditional served end markets as well, we're seeing a generally positive demeanor. And within each of those industries, there's end market-specific activities going on as well. So as we move across discrete, hybrid and process end markets in discrete, we saw low double-digit growth the last quarter from automotive, which is about 10% of our total business.

And we're still not seeing a wholesale release of CapEx, but we are seeing some major projects here and there, and then we're certainly seeing a lot of modernization. Discrete is where data center is found, e-commerce, warehouse automation, the parcel handling companies are spending a lot of money to get the right balance between labor and technology.

In hybrid, food and beverage. We're seeing decent growth, again, primarily centered around modernization. Home and personal care, high single-digit growth in the last quarter. Life Sciences, about 10% growth in Q3. And that is one of the areas that we're seeing some early examples of reshoring or shoring as I like to call it.

And then energy markets. When oil prices are high, when oil prices are low, efficiency is still an important part of the agenda for the oil and gas companies. And then mining and chemical, I think, shows some signs of progress.

Tessa?

Yes. I think across the board, we're seeing good progress across industries. And operational efficiency and driving productivity in plants is always a top priority for the customers that we serve and that drives demand for the products and services that we have.

And as you think about the operational efficiency perspective, how have some of the labor constraints and broader inflation in the market affected the conversations and the prioritization of these automation investments?

Yes. I think about a year ago, there were some conversations. We heard from 2 different types of industrial companies, one in automotive and another one in parcel handling, where they had gotten through discussions with their labor unions and they immediately went to a place of how can we get additional automation, again, to strike the right balance there.

So at 4.1%, 4.2% unemployment, a lot of key jobs in manufacturing are going unfilled. And so having the right amount of technology for the scarce resources that these manufacturers do have is really important, to give them the superpowers to get as much productivity as possible per person who is working in these facilities. And that's been a consistent theme across really all of our served markets.

I think in data center, just to go there for a minute, time to value is so important, modularity, these things are looking like factories as people have said. And so our technology is being increasingly adopted there, and we're seeing some nice wins in an industry that previously was not as big a contributor.

I think a lot of the conversation is centered around modernization investments. But when we're thinking about the broader theme, it's been more so centered on greenfields and bigger project activity. What do you see as the main catalyst that would really unlock that larger project activity going forward?

Yes. I think a reduction in the uncertainty as there's a lot of active headline grabbing trade discussions going on. I was in Washington yesterday. And it is a very active moment, certainly for the U.S.'s most important trading partners here with Canada and Mexico and a reduction in the volatility there particularly in industries like automotive, where the supply chains are so integrated across those 3 countries, I think that would release more capital.

And is there anything -- any data points or anything particular you track to keep a sense on the broader momentum in the market?

So we're most highly correlated over time to industrial production. We certainly look at the PMI rates and those have been positive for a while now, over 50 but industrial production is what Rockwell's business traditionally has been most highly correlated to. So I certainly look at that.

I look at unemployment because I think with such low unemployment in our home market, demand remains intact. A little bit harder to quantify, but progress of let's say, USMCA 232 -- Section 232 are in some ways, even more important right now, but watching the progress of that, those are some of the things I'm looking at particularly.

And to that policy perspective, we've seen different government initiatives, whether it be tariffs or like OBBBA. How have these initiatives impacted the conversations and demand around reshoring? And what policy do you think you'd want to see that could further spur it?

I'd like to see us take a pragmatic approach with the targeted application of tariffs, not the wholesale one-size-fits-all type of approach. Let's focus on the main issues, which is nonmarket behavior by non-market economies that are doing disruptive things with overcapacity, but not a broad-based approach that hurts friend and foe alike as well as U.S. manufacturers for whom they have a very hard time finding domestic sources of critical inputs.

If the main prize is to increase the amount of final assembly in the U.S., providing a clearer path for being able to get relief on inputs that are important for that final assembly, I think is an important area of focus for policymakers.

And I guess, as you look at some of the movements in demand more recently and how customers have reacted to tariffs, how do you parse out shorter-term investments to mitigate tariffs versus investments that will build towards that longer-term strategy of capacity?

Yes. I think people are still getting on with their strategy, and I look at Rockwell's own behavior. We announced not too long ago a major new plant that will be very close to our headquarters in Wisconsin. And while we won't see the first products coming out of that plant until 2028, we're taking a long view to what can unlock the next level of customer service and margin expansion there.

And so tariffs currently aren't helpful, but that shouldn't cause us to put an indefinite pause on the execution of things that are going to increase market share and expand margins. And I think a lot of customers looking like it, looking at their own strategy and their own road map in that way.

And then as we kind of dig into the verticals more, Rockwell's exposure is typically aligned more so what the U.S. traditionally produces a lot of exposure to food and beverage, for example. But when you look at the markets more prone to reshoring conversations, whether it be semis, pharma, battery, how transferable are Rockwell's products and solutions to those markets that have more often been produced overseas?

Yes. So I think there's a nice mix as we track new capacity projects. So major new capacity, whether it's reshoring or shoring or in some cases, it's growing like in case of data center, where it's not moving from any other place. It's just -- there's a much greater demand here. I see a nice mix between industries that we're traditionally not as associated with Rockwell and industries that have been in our wheelhouse for a long time.

So semiconductor and new fabs, we haven't talked as much about it in North America, but that's been one of the top 1 or 2 industries in Asia for us for a very long time, the facilities management and control systems. There are semiconductor facilities here in the U.S., you used to have one in your territory. That was one of the largest Logix installations in the world.

And so we're not a stranger to that and then some of our new offerings, some of the work we're doing with the chiller OEMs, for instance. I've talked before about what we're doing with Texas Instruments in one of their fabs to optimize their chillers using AI, wafer transport with independent cart technology. So some capabilities that we have now that we didn't have 10 or 15 years ago, I think, are helpful.

Data center, we can talk about the ways that we are penetrating the data center opportunities in a minute. And then we talk about life sciences with a lot of opportunities spanning software and digital services and hardware. So there's a nice mix there.

Yes. And I would say we have a global approach to working with customers and a long history of working with customers globally and supporting them as they make investments in other regions of the world and particularly in the U.S. And I think that's one of the benefits of our architecture and our product portfolio is that it does apply to a lot of industry verticals and applications. So the investment that we make in that technology, how we integrate it together can be leveraged across a lot of industry verticals.

I think if I can add one thing, even though we're not talking a lot about reshoring for food and beverage companies because candy bars and beer have never traveled really well across the ocean, you generally want to -- you generally want to produce those things close to the consumer market. A really important part of food and beverage and home and personal care and pharmaceuticals is the end-of-line packaging. When you put it in a bag or a box or a pill bottle.

And those OEMs, those machine builders, many of which are based in Europe, all have some capacity in North America, which with all the tariffs and the focus on North America as a growth market, they're all looking at increasing that. And the battle, of course, is, are they going to be using more of their European standard? Or are they going to be using more Rockwell? They all have experience with Rockwell. And what we are seeing is that, especially with a lot of the new products that we're coming out with, we're winning more than our fair share as those machine builders are increasing their presence in North America.

And many times, it's for commercial reasons because if they're competing at a big food -- U.S.-based food or beverage or home and personal care end user they prefer that we were working with them and not competing with them if they have made it clear that they would not going to use Rockwell. And so they'd rather have a friend and an ally as they try to sell their machines against their worldwide competitors than competing against us as well.

We have to have a competitive product at the right price. But I think -- and you've been a part of a lot of those discussions, both here in the U.S. as well as in Europe, but I think we're making some great progress there.

And to that point, on winning your fair share, there's been conversation in the past, concerns that Rockwell maybe losing share in the market. How are you guys able to differentiate? And what -- how would you assess your competitive positioning?

Yes. Well, we look at it in a variety of ways. We certainly look at the market share reports. And while those are lagging indicators, recently released reports look good and give us a lot of confidence in our comments that we're taking modest share in some really important places.

We look at head-to-head marquee battles, where we're competing with our major competitors and making sure that we're seeing that the combination of our new offerings as well as our ability to have the right price, our support, our engineering when that's a part of the project. Those are all part -- the responsiveness of the organization, how I and my team are ready to jump into a battle at the point of attack when there's an opportunity to win. Those are all things that we've tried to instill as a fundamental part of the culture, making faster decisions, better empowerment.

Now to some of the foundational pieces, I don't think our portfolio has ever been in better shape than it is. When I look at software and control and build-out of our software-defined automation, that's not just a virtual PLC. We have that. We'll be showing it to you in Automation Fair in Boston in November. But it's a system-wide approach. So it includes the simulation tools. It includes the agents. It includes FactoryTalk Optix at the edge. And then we have a lot of new products coming out of Intelligent Devices as well.

Yes. We've had a number of really positive new product introductions where we're growing beyond our expectations in those areas. And what's really positive about that is we're not just seeing wins with existing customers. We're seeing wins with new customers, gaining new share and new customer conversions as a part of those new product launches. So I think the combination of the technology that we've built, things that we've added over the last few years through acquisition, have brought together a really nice overall system architecture capability that's really resonating with customers.

And as we share with them and what you'll see at Investor Day and Automation Fair in November, the progress that we're making in innovation around how we bring that architecture together, how we help customers orchestrate the resources and the production processes in their plants, and how we're applying artificial intelligence as an assist in a value-add to the systems that our customers have. We're getting really positive feedback from the market.

And with these new innovations coming to market, how does that kind of augment your content opportunity? Is there any kind of rule of thumb or sense you get for every unit of CapEx, this is what Rockwell has the right to win?

Yes. So at the highest level, while it would make everybody's job easier that if we could apply a percentage to CapEx 1%, 0.5%, 2%. It's still too variable by individual industries. So if CapEx is being deployed in a new automobile assembly line, for instance, within the existing building envelope, that percentage of automation or Rockwell content is going to be significantly higher than if somebody announces a $10 billion wafer fab where it's going to be a fraction of 1% in terms of our content as a part of that. So there's a mix across those.

Now the other piece of it, and this is a part of our growth algorithm where we talk about all-in 6% to 9% top line target CAGR through the cycle. 3% to 5% of that being market growth, including price, 1% to 2% expanding markets and share growth, expanding markets in things like mobile robots, in terms of FactoryTalk Optix, in terms of some of the digital twin creation that we have capabilities for that weren't a very large market. Rockwell had low participation in it.

Process. For some of you who remember, we talked for a long time about process being our biggest growth opportunity. Process is all in 40% of Rockwell's total business with discrete being about 25%. So I really like the even balance that we have across end markets. And I think that's been helped in some part by some of the new offerings that we have as well.

And I guess as you think about expansion into new markets, with these innovations, what products in particular or solutions are you most excited about? And what has resonated best with customers? And how does that unlock value for your customers?

Yes, I'm going to throw that to Tessa first, and then I'll make some comments.

Yes. Look, I think we're focused on -- as we expand the product portfolio and we add new features, there's a few technology enablers that we think are really supportive of the work that we're doing. Certainly, software-defined automation, software-defined architecture is a big area of focus for the organization. And as Blake said earlier, that's not just about a virtual plc that you can run on different types of hardware.

It's really taking this approach of all content, all products, all technologies within the architecture from that software defined. It makes it easier to design and engineer. It makes it easier to deploy. You can validate it before you put it into production. And you can more easily life cycle management. So our customers see a significant benefit across the life cycle of the system because of that.

Artificial intelligence is certainly a technology enabler that we're focused on. And that's not just a stand-alone AI product. That's how we bring that to all aspects of the architecture. So artificial intelligence, agents in our design environment so that it helps engineers more easily design, emulate and simulate a system, and speed their time to deploy. That's AI applied in our software applications that help our customers more easily build and optimize production schedule to identify issues that are happening in operations and improve and then certainly in maintenance.

From a predictive maintenance perspective, monitoring the equipment that's installed and identifying anomalies or fixes that customers can apply before they have an issue. And so AI is certainly a driver.

And then we think robotics is a big area of technology interest and certainly the acquisition of OTTO Motors and Clearpath Robotics was an important step forward for us from a robotics perspective because a big area of labor intensity and cost is material moving through a plant. And so intelligent material movement solutions is a big area of investment and focus around driving cost and productivity and in operation.

Yes. If you think about some of the big themes that we've talked about, software-defined automation, our offerings in the physical AI area with robotics, with motion control, some of these areas. And then the overall orchestration of a plant environment being able to orchestrate the fixed automation that's been Rockwell's foundation for a long time. The mobility, including robots, for instance, all types of robots and then weaving people through a connected worker stream and bringing all that together, Rockwell's got a great head start in those areas.

We have a great MES offering, we have fleet management with our mobile robots that can be extended to other types of robots, including humanoids and a connected worker offering with Plex and some of our other software. And then software-defined automation. We've talked a lot about that. And physical AI, Tessa just touched on some of our offerings there, we're moving at pace in all of these areas. And importantly, bringing that together with our offerings, but also the ability to interface with others is something that I think we're second to none.

And as we look at just generally movements with productivity and efficiency, how do you see opportunities to sell that in your own operations?

Yes. So -- and Tessa can talk in a minute about what she's doing specifically in Intelligent Devices. But look, we are absolutely committed to continuing the path that we've been on for the last couple of years in terms of expanding margins, going to and through historic levels. And that's in product-specific businesses with new product introduction, products that can do more for a lower cost, direct material negotiations, preferred products, pricing and there's lots more that can be done with pricing, the intelligent use of reusable IP to increase the margins in our people-intensive businesses.

And of course, the progression of [ OROS ] and our Lifecycle Services business is probably the best example where we've roughly doubled the profitability of that business in a relatively short period of time. And we're not done. And we've gone through a lot of the early tactics that Christian and I and others have talked a lot about. But the investments in roughly $2 billion in plants and talent and digital infrastructure have, as a large part of their objective, the continued expansion and kind of that next tier of margin increases as well as improved customer service. Maybe a little bit about what we're doing specifically in Intelligent Devices.

In Intelligent Devices -- so I'm -- we're really focused on systematic approach, a continuous improvement, and the team has really embraced that. And so in Intelligent Devices, expanding margins, certainly volume. We want to continue to grow the business as we move forward. Direct material costs, so a big portion of the cost for the business is the raw materials that we get from our suppliers. So that's a combination of commercial negotiations, product redesign, identifying alternative components. And so direct material is a big piece. Manufacturing efficiencies, so the investments that we're making in increased automation in our own plants and new ways of working in our plants and driving manufacturing efficiency is important. Logistics, ensuring that we've got the right logistics network and processes can certainly drive some efficiency as well.

How has experience during prior up cycles kind of informed your strategy as demand starts to pick back up now?

Well, first of all, I don't think that we can slot our current moment in time as fitting neatly into a prior cycle in that we talk about in the past, it was perceived that we would see really strong performance with early cycle industries and applications. Automobile, packaging were typically more product-intensive early-cycle businesses followed a couple of quarters later by exposure to growth in process, energy and mining and so on. But there's too many I don't know, idiosyncratic or special things that are going on right now.

You look at in the automobile segment, the shift back to hybrid and internal combustion engine powered vehicles is kind of an unusual once-in-a-generation type of shift as people building cars are saying, we're going to build what customers want. And yes, there's still going to be a market for EV, but if people want to buy hybrid or gasoline-powered vehicles, then that's what we're going to build. And so we're seeing that driving some of the model changes.

With energy, with the kinetic conflicts around the world, that's put an extra element into the traditional investment cycles of energy markets.

Life sciences, GLP-1. I mean there's a few of these things that I think, make it hard to characterize this particular point in the curve. Now what's Rockwell doing? Well, first of all, I like that we have broadened and balanced our exposure across discrete and hybrid and process end markets. I like that we're getting good growth from data center, but it was only 2 of the 10 points of organic growth that we saw -- year-over-year organic growth that we saw last quarter, and I think that's a nice place to be. And it speaks well to our ability to grow without data center as well.

We love the data center growth, but I like having other cards. So I think that -- I think adding the new ways to win in some cases, with technologies that our competitors don't even have. It's not just having the best PLC. It's having a mobile robot that none of our major competitors have and the ability to knit those different disciplines together, the software, the information management, the really effective use of the agentic AI, all of these things, I think, will give us an ability to decrease the trough in a traditional cycle and to be able to make sure that we've got a more consistent higher upside. That's on revenue.

If I can talk for just a minute about the margin side of things, look, we had a significant amount of reduction in force in 2024 and early 2025. We're still down almost 10% in terms of headcount across the company from our peak in early 2024. And we are committed to making sure that as we add new resources, it is with a lot of discipline being able to be efficient and thoughtful, making full use of artificial intelligence tools within the organization. So that, that gives us an additional tailwind as we put all of these other margin expansion plays into practice.

And so that is something that has informed us that it's a consistent investment. We continue to be committed to the percentage investment in engineering and development that we've talked about, but it is making sure that we don't go back to a place where we found that we added too quickly and that we have to strip that away. It's using that crisis that we saw a couple of years ago in that base as a way to grow more profitably than ever before. And I think our conversion on incremental revenue is a testament to that. And we have every intention of continuing those high levels of conversion.

I think we're getting down to a few minutes left. I wanted to leave time for any questions from the crowd.

Could I just ask about semiconductors? And when you think about how you purchase semiconductors, how long are your contracts? And to what extent are we actually seeing the full sort of spot prices already reflected in your cost base? And how long will it actually take given how those contracts are structured to see that fully reflected in your numbers? And is that something we should be concerned about? Or do you think you can price up accordingly?

No, I think we can stay ahead of it in terms of price. So we do have a certain amount of long-term supply agreements with the semiconductor suppliers. But we're not counting on any near-term moderation of the pace of increases, particularly in memory. I mean that's really the crux of it.

We did a nice job of buying ahead. And so in our inventory, we have a number of tranches of different costed components, more frequent price increases, price increases that are expected to keep up with that cost and preserve the margin with respect to those inflationary drivers. We feel comfortable with that, and we're not looking or basing our plans on a hope or expectation that, that moderates anytime soon.

Importantly, we're not seeing that affect availability of the memory. I mean we are -- compared to the data center demand, we and our peers are relatively small consumers of this, and we're still getting the supply that we need, albeit at a very inflationary price.

Like, if I could add, I think one of the biggest lessons that we -- coming out of the supply chain crisis was the processes and the agility for the organization to also respond. And so it's -- whether there's -- it's availability or it's cost, we have an ability to evaluate alternates, design in alternate vendors. And so it's a combination of managing existing vendor relationships, having that agility and resiliency to move as well and then leveraging price in the market. And so I think we feel good about our capabilities across all of that.

Yes. I mean the task for our development engineers hasn't gotten easier, but besides creating new products, they're constantly trying to do product cost reductions. They're looking at resiliency and shifting suppliers from high-risk areas to other areas. And then when we have new disturbances or disruptions to the system like inflation due to data center demand, they factor that in as another thread that has to ultimately be synthesized into a single effort and I think they've done it in an engineering like way, being able to weight those varying things. But over the last few years, we recognize that there is a certain baseline of continuation engineering that is just going to be a part of our operations for the foreseeable future.

I think we're at time. But thank you again for being here. We really appreciate it.

Thank you.

Yes. Thanks, everybody.

Thank you.

Thank you for 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 Aijana Zellner, Head of Investor Relations and Market Strategy. Ms. Zellner, please go ahead.

Thank you, Julianne. Good morning, and thank you for joining us for Rockwell Automation's Third Quarter Fiscal 2026 Earnings Release Conference Call. With me today is Blake Moret, our Chairman and CEO; and Christian Rothe, our CFO. Our results were released earlier this morning, and the press release and charts are available on our website.

These materials as well as our remarks today will reference non-GAAP measures. Reconciliations of these non-GAAP measures are included in both the press release and charts. A replay of today's webcast and a transcript of our prepared remarks, will be available on our website at the conclusion of today's call.

Before we begin, please note that our comments today include forward-looking statements regarding the expected future results of our company. Our actual results may differ materially due to a wide range of risks and uncertainties described in our earnings release and SEC filings.

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

Thanks, Aijana, and good morning, everyone. Before we turn to our third quarter results on Slide 3, I'll make a couple of initial comments. We delivered a strong quarter with double-digit year-over-year growth in sales and earnings exceeding our expectations. This sustained momentum underscores Rockwell's strong position in North America and growing penetration in new end markets, an accelerated pace of new product introduction, our unmatched partner ecosystem and the team's disciplined execution.

We continue to see strong demand across Semiconductor, Data Center, e-Commerce & Warehouse Automation. While we are not yet seeing a pickup in CapEx across Food & Beverage and parts of process, we are seeing early signs of renewed project activity in Automotive and Life Sciences. Customers are increasingly turning to Rockwell's differentiated portfolio of hardware, software and services to adapt to changing market dynamics from GLP-1 related investments and evolving food and beverage demand to AI-driven data center growth and new opportunities across energy storage, defense and advanced manufacturing.

I'm proud of how our team continues to execute amid geopolitical volatility, trade uncertainty and persistent inflation. The Rockwell operating model helps us drive operational excellence, serve customers and invest for the future. Those principles are on full display at our Singapore manufacturing facility which was recently named a World Economic Forum Lighthouse for its leadership in digital and AI-enabled manufacturing.

Turning to our third quarter results on Slide 3. Q3 sales came in above our expectations. Reported sales were up 8% and organic sales were up 10%, with the impact of the Sensia dissolution decreasing sales by 3% and currency contributing about 1 point of growth. Products continue to outperform our longer-cycle solutions business, a smaller modernization projects across most industries drove the majority of our growth in the quarter. The vertical is seeing the strongest capital investment, including semiconductor, data center and e-commerce and warehouse tend to be more heavily weighted toward our product and software offerings.

Our Intelligent Devices organic sales grew 10% year-over-year with broad-based growth across all product lines. New offerings such as PointMax I/O, additional PowerFlex drives and Flex line motor control centers are seeing strong adoption, particularly in the e-Commerce, warehouse automation and process industries. We also delivered double-digit growth in our production logistics business with strategic wins across food and beverage, semiconductor and life sciences. Software and control organic sales were up 18% versus prior year, driven by another quarter of strong double-digit growth in Logix.

Lifecycle Services organic sales were down 2% versus prior year generally in line with expectations. Book-to-bill in this segment was 0.97. While customer engagement remains healthy, growth in this segment continues to be constrained by the lack of capital spending recovery in food and beverage and certain process industries, where many of our Lifecycle Services offerings are deployed.

Organic annual recurring revenue grew 6% in the quarter, below our expectations. High single-digit software growth was partially offset by the slow growth in recurring life cycle services. While services growth was softer than expected, we continue to add important ARR wins across our customer base. A great example is Unilever which expanded its cybersecurity program to additional sites. The engagement combines our threat detection and secure remote access software with managed cybersecurity services to provide continuous monitoring secure connectivity and protection of critical manufacturing operations. Enterprise operating margin of 22.3% and adjusted EPS of $3.49 were up double digits versus prior year, led by strong volume and favorable mix.

Moving to Slide 4 for Q3 industry highlights. Our discrete sales grew high teens year-over-year led by strong double-digit growth in semiconductor, data center and e-comm and warehouse. Within discrete, automotive sales were up low double digits versus prior year, marking another quarter of better-than-expected performance. Customers continue to prioritize investments in productivity, quality and asset utilization. While tariffs and geopolitical uncertainty continue to delay large greenfield projects, modernization spending remains strong.

A great example is Convergix, a global system integrator who chose Rockwell's Emulate3D digital twin software to model a complex conveyance system. The solution is helping reduce project risk, accelerate commissioning and bring production online faster. Another notable win in Q3 was with a large automotive brand owner, where Rockwell's end-to-end automation portfolio were selected to improve operational efficiency and accelerate the launch of future vehicle programs across multiple global plants.

e-Commerce & Warehouse Automation sales were up 30% year-over-year with continued strong performance across regions and customer segments. Semiconductor delivered another strong quarter, driven by increased activity from several leading equipment manufacturers and chip makers including continued investment tied to AI infrastructure. Data center remained a strong growth market in the quarter. Customers continue to invest in the power cooling, automation and control systems required to support increasingly complex and energy-intensive facilities. This creates further opportunities across our hardware, software and services portfolio.

Turning to our hybrid industries. Sales in this segment grew mid-single digits with good growth across all major verticals. Food and beverage sales were up mid-single digits, led by growth in North America. While we have yet to see an inflection in large capital projects here, customers continue to invest in modernization and digital transformation initiatives across protein dairy, fiber and nonalcoholic beverage applications.

Sales in our life sciences vertical were up 10% in Q3 with broad-based growth across all regions and continued improvement at both machine builders and end users. In addition to favorable end market demand, we continue to expand our position through competitive wins. An important win in the quarter was with a leading pharmaceutical and biotech contract development and manufacturing organization who chose Rockwell's integrated process control and MES platform to standardize drug substance manufacturing across its operations.

Moving to process. Our sales here were up high single digits, led by growth in energy, metals and chemicals. Energy sales were up high single digits in the quarter, with customer spending focused on brownfield expansions, asset modernization and production optimization. We also continue to see healthy activity across LNG, midstream, power infrastructure and offshore markets, supported by rising energy demand and the ongoing build-out of power capacity for data center and electrification.

Mining sales were down mid-single digits, reflecting measured capital deployment across the industry and some project timing delays, specifically in Latin America. With that said, customers continue to invest in productivity, autonomy and digital transformation as demand for critical minerals continues to grow.

Moving to Slide 5 for our Q3 organic regional sales. Similar to last quarter, we saw good year-over-year growth across most of our regions. North America was our strongest region in the quarter with 12% year-over-year growth, and we continue to expect it to be our fastest-growing region for the full year fiscal 2026.

Let's now turn to Slide 6 to review our fiscal 2026 outlook. With 3 quarters behind us, customer investment is broadening across more of our end markets. While we have yet to see a broad-based recovery in large capital projects, we are confident Rockwell is best positioned to capitalize as spending accelerates. In the meantime, we'll continue to operate with discipline and prudence in what remains a very dynamic environment.

We now expect both our reported and organic sales growth to be in the 7.5% to 9.5% range for the year. At the midpoint, reported sales growth includes approximately 150 basis points of favorable currency translation offset by the impact of the Sensia dissolution. Our full year sales midpoint of 8.5% assumes modest sequential growth in Q4 and driven by the typical seasonal uptick in our longer-cycle businesses within Lifecycle Services and Intelligent Devices.

We expect organic annual recurring revenue to grow mid-single digits. We continue to expect our enterprise operating margin to be 21.5%, up 260 basis points from last year. And we now expect our adjusted EPS to be $13.15 at the midpoint, representing about 25% growth versus fiscal 2025. Finally, we continue to expect free cash flow conversion of 100% in fiscal year '26.

I'll now turn it over to Christian for more detail on our Q3 and financial outlook for fiscal '26. Christian?

Thank you, Blake, and good morning, everyone. Let's go to Slide 7, third quarter key financial information. As Blake mentioned, our third quarter organic sales were up 10% versus prior year. Price contributed approximately 1 point to growth. Our enterprise operating margin expanded 280 basis points year-over-year, driven by higher sales volume and favorable mix, partially offset by negative price cost. As expected, the dissolution of Sensia had a positive impact of about 40 basis points on enterprise operating margin.

Gross margins expanded 70 basis points year-over-year to 49.5%, driven by higher volume, favorable mix and a margin benefit from the Sensia dissolution. The Sensia dissolution was effective on April 1 of this year and, as expected, was completed smoothly and on schedule. Excluding the year-over-year impact of the divested businesses in Q3, gross margins expanded slightly year-over-year.

SG&A was up less than 1%, giving us solid P&L leverage on our baseline spending and engineering and development increased 5% as sales growth was faster than our engineering development spend. However, E&D still represented about 8% of sales in the third quarter. We continue to expect E&D to be about 8% of sales for the full year. Our adjusted effective tax rate in the quarter was 19.2%, slightly lower than our expectations. We continue to expect an adjusted EPR of 19.5% for the full year.

The broadening strength in our business that Blake highlighted drove another quarter of outperformance with Q3 adjusted EPS of $3.49, up more than 20% year-over-year. Free cash flow in Q3 of $654 million was above our expectations. It was $165 million higher than the prior year, primarily due to higher pretax income driven by our strong Q3 results and good working capital management.

Now on to Slide 8 for the sales and margin performance of our 3 operating segments. Intelligent Devices margin of 20% increased by 120 basis points year-over-year lower than we expected. The higher year-over-year sales, favorable currency and mix were partially offset by inflation. Year-over-year segment incrementals landed at 30%. Software & Control margin of 34.8% was up 320 basis points versus prior year and was higher than our expectations, driven by strong sales volume, partially offset by inflation. This segment saw year-over-year incrementals of about 50%. Lifecycle Services margin of 15.1% was up 180 basis points year-over-year, in line with expectations. Lifecycle Services had another quarter of good project execution and productivity and segment margin benefited from the dissolution of Sensia. These were partially offset by lower sales volume.

Total Rockwell incremental margin was in the high 50s year-over-year in Q3 on an as-reported basis and over 40% on an organic basis. This is our fourth consecutive quarter of incrementals above 40%.

Let's move to the next Slide 9, for the adjusted EPS walk from Q3 fiscal 2025 to Q3 fiscal 2026. Year-over-year, core performance had an impact of $0.65 in Q3. Our core performance was driven by volume, mix and productivity, partially offset by price/cost. Core price/cost was unfavorable in the quarter, reflecting rising costs and the timing of price increases. We implemented a price increase late in Q3 that will be realized in Q4. The team still delivered strong margins and healthy incremental conversion in the quarter, demonstrating the strength of our operating model. We continue to expect positive price cost both for the full year and in Q4. Tax was a $0.20 headwind largely due to BEPS Pillar Two. All other items had a $0.09 positive impact on our adjusted EPS.

Moving on to the next slide, 10, to discuss our guidance for the full year. We are increasing both our reported and organic revenue guidance to a range of 7.9 -- sorry, 7.5% to 9.5% or 8.5% at the midpoint. This is up 150 basis points from our prior guidance. This increase reflects the outperformance we saw in the quarter and higher growth expectations for Q4. Our third quarter results and full year guide do not include any impact from expected IEEPA refunds or claims resulting from the Supreme Court decision.

Turning to Slide 11. We are increasing our adjusted EPS guidance range to $13 to $13.30. The new midpoint of $13.15 per share is up $0.35 from the midpoint of our prior guide. For the full year, we still expect about 250 basis points of price realization with about 100 basis points from tariff-related pricing and about 150 basis points from underlying price. We remain on track for tariffs to be EPS neutral in fiscal 2026 with pricing offsetting the associated costs. This updated guide continues to reflect our expectations for full year incrementals of greater than 50% on an as-reported basis and high 40s on an organic basis. These strong incrementals are driving 260 basis points of expansion in enterprise operating margin year-over-year.

Specific to the fourth quarter, we expect total company reported sales to be up low single digits sequentially with approximately flat enterprise operating margin compared to Q3. This is due to higher inflation and an unfavorable mix with configure to order and solution sales hitting their normal seasonal peak.

Intelligent Devices segment margin should be up slightly from the third quarter on modestly higher sequential volume. We expect segment margin in Software & Control to be lower sequentially on flat sales as inflation on items like memory hit here the hardest. For Lifecycle Services, we expect segment margin to be flat from the third quarter on higher seasonal sequential revenue.

For the full year, we expect Intelligent Devices reported revenue to grow in the low double digits with segment operating margin of around 20%. For Software & Control, reported revenue should grow in the high teens with segment margin in the low 30s, up several hundred basis points year-over-year. For Lifecycle Services, we expect reported revenue to decline about $150 million year-over-year, driven by the Sensia dissolution and some of the ongoing longer cycle headwinds Blake discussed. We still expect Lifecycle segment operating margin to be flat to slightly up year-over-year. For your models, CapEx for fiscal 2026 will come in at about 3% of sales.

A few additional comments on fiscal 2026 guidance for your models. We expect corporate and other expense to be around $115 million. Net interest expense for fiscal 2026 is targeted at about $120 million. During the quarter, we repurchased about 300,000 shares at a cost of about $150 million. We expect approximately $850 million in repurchases for the year. And we're now assuming average diluted shares outstanding of about 112.2 million shares.

To summarize, while inflation remains a headwind, the Rockwell team has done a good job of managing through it by driving top line growth, securing component availability and mitigating cost pressure through pricing, productivity and disciplined spending. Combined with the core principles of the Rockwell operating model, these actions are driving double-digit year-over-year earnings growth and enterprise operating margin expansion of several hundred basis points year-over-year. Really proud of this team.

With that, I'll turn it back to Blake for some closing remarks before we start Q&A. Blake?

Thanks, Christian. I'm pleased with our progress through the year with the fiscal year '26 top line guide at the higher end of our midterm growth framework and enterprise operating margin developing well. Customers are excited about the accelerated pace of new product launches, which is having a meaningful impact on our results. And automation fair is coming to Boston in November where Rockwell and our partners will showcase even more offerings and innovation. Registration opens tomorrow.

I continue to be proud of how our team is driving execution and customer service and how they're maximizing the impact of our investments on longer-term profitability and growth.

Aijana will now begin the Q&A session.

Thanks, Blake. We would like to get to as many of you as possible, so please limit yourself to one question and a quick follow-up.

Julianne, let's take our first question.

[Operator Instructions] Our first question comes from Scott Davis from Melius Research.

Numbers look pretty solid overall. I got a little confused on the price comments. Maybe, Christian, you can help out a little bit. It seems like you guys have been running at about a 1 point of price positive. Now you're talking about getting, I think, another 1 and then another 1.5 on top of that for tariffs, maybe I didn't hear that right. Just walk us through that just, a, to check my math; and b, is this an 80/20 initiative that you're able to drive some incremental price? Are the tariff price increases actually separate and they come off as soon as tariffs come up, kind of how to mechanically do you guys manage this?

Yes, sure, Scott. I appreciate the question. So we typically give a view on price for the full year at the outset of at our guide for the beginning of the year, and then we kind of give updates as we go through. So we've always been calling out about 250 bps, 200 to 250 bps of price for the full year 2026. 100 bps of that is coming from tariff-based price, 150 bps is coming from underlying price. In the third quarter, we started to lap some of the comps on tariff-based price. So the tariff-based price side is -- was 1% and underlying price was close to nil.

Now a lot of that has more to do with the timing of when our price increases have gone through. So we did an inflationary based price change that happened in Q3, we're going to see that come through in the fourth quarter. That all is consistent with what we're expecting for the full year, that 250 basis points of total price.

That tariff-based price, just to make sure we're on the same page around that, I know we've -- we talked about this message before, but tariff-based pricing is really there to create EPS neutrality around tariff-based cost. And so that's the -- it's not really all that incremental as far as the conversion goes. So I just wanted to note that for you.

Yes. No, that clears it up. And just quickly on Flex, I haven't heard you mention Plex in a while. Where are we on the deal model on that -- on that asset and how are you guys feeling about it?

Yes. Feeling good about Plex. Plex was part of the software ARR that was at the higher end, high single digits. Plex continues to add new logos, automotive tier suppliers, consumer, which at the very beginning, that was one of the fundamental hypothesis is that we could use our existing market access to help Plex expand into consumer packaged goods, and that's exactly what we've done. Very profitable, new functionality the embedding of agentic AI throughout in various of the modules work. And this is especially exciting to me personally, work to integrate Plex and traditional MES with fleet management from our mobility from mobile robots. And so you hear a lot going on about orchestration, and we've got a great head start by having a really fantastic cloud-native MES system with fleet management. So again, Plex is part of the software ARR that was up high single digits in the quarter.

Our next question comes from Andrew Obin from Bank of America.

Just maybe a broader, bigger picture question on inflation and pricing. As you look over the next 6 to 12 months, what's going to get better, right, because labor costs probably not going down. I think the semiconductor supply chain is not going to get better. I think raw materials remain in flux. And how do you adapt to this environment? So maybe your thoughts on inflation and what sort of structural countermeasures can you do because it seems like you guys are going to be in this inflationary growth environment for a while.

Yes. Andrew, it's a good question. And for sure, inflation is a dynamic environment right now, started with memory earlier this fiscal year for us. And it's continued to expand. Data centers definitely and data center demand is impacting a number of things, memory being the biggest one, but there's a number of other aspects that are coming with it. So first of all, from a -- #1 issue is let's make sure we can ship product. So that means let's make sure we have the components and we have good availability. The supply chain team has been on this all year long. So they have done a really good job of putting us in a good spot to be able to continue to produce our product. And so that is not impacted.

Now that being said, the cost side, the cost side is -- again, it's -- the inflation continues to be an item that is a growing headwind for us. The first quarter call, I talked about it being a single-digit millions kind of headwind. Second quarter call, it was a double-digit million headwind. This call, I'll tell you that it's still double-digit million headwind for the second half here that we're experiencing, and it's a higher number than what we had last quarter. So it is, in fact, increasing.

Now all that being said, we are in a position that we can go and get price to offset that. We have a lot of productivity actions that continue to occur inside the organization. And there's a lot of other aspects that are -- that can continue to work in our favor. Probably the biggest one is that we are in a growing volume environment which does provide us the opportunity to go back and recapture some of the areas that we think we have savings on direct material, negotiations with suppliers, not necessarily on the ones that are impacted by inflation so much, but we do have an opportunity to continue to work really hard on the direct material cost. So the team is doing a good job with that.

As we turn the page and we start thinking about next year, it's tough to know exactly what we're going to expect with regard to inflation because, again, it's not one of those that we're expecting to stabilize anytime soon. But we will continue to react to it, try to get ahead of it with regard to the supply chain and making sure we have the product in place and we'll take pricing actions as appropriate.

So Christian, maybe just a few additional comments to that. Andrew, you asked structurally about what do we do. And fortunately, we're actually able to take advantage of some of the structural changes that we incorporated during the supply chain shortages a few years back. A lot of that has to do with really good coordination with our channel partners because pricing for products largely goes through distribution. So moving to fixed discount methodology for faster realization of price, more frequent price changes. We're in an environment like this. Internally, making progress on alternate sources of some material so that we can introduce some competition into the mix. Those things are helping us well in the current environment.

And just maybe a question on Lifecycle Services. I would have thought that as you're starting to see a pickup in organic growth, the installation business would pick up. Is it really driven mostly by these large CapEx projects that are still on the come? What's missing on the services ARR?

Sure. Yes. I think what we're seeing as we look at delays in the projects, we went deeper on that to look at the specific reasons given by customers. Overall, it's a cautious approach to deploying capital. It's a desire to delay things that are important, but perhaps not urgent in their eyes. We're seeing high levels of decision authority for greenlighting some of these projects. In certain cases, funding constraints. That was a specific issue with capital projects in LatAm that we saw. So there's nothing earth shattering.

Terms and conditions, I've mentioned that before as people in such a volatile environment with respect to tariffs, and inflation. They want to make sure that the cost side of their business case is solid. And in some cases, they're looking to take a card, so to speak, to be able to try to find a little more uncertainty -- a little more certainty in these situations. So it's a number of things and some of the factors are similar for the CapEx projects as they are for the lower ARR in services. Some of the root cause goes back to which industries are deploying capital and which are spending put, food and beverage is one that we've given as an example, which is a traditionally strong contributor to both Lifecycle Services CapEx projects as well as ARR with programs like cybersecurity.

Our next question comes from Andy Kaplowitz from Citigroup.

I've got a quick question. Last quarter, you mentioned that book-to-bill was a bit over your normal range, was that still the case in Q3? And/or would you say that you have more backlog coverage than usual at this point going into Q4? And then it seems like you're seeing some more unlock of larger CapEx projects now in larger markets such as auto and life sciences. Why those markets, maybe you could elaborate on the improvement you're seeing in those markets?

Yes. So on the book-to-bill question, we called it out last quarter because it was just slightly above our normal corridor. And so that number we called out was for the first half, we were expecting it to be back inside the -- in fact, for the first half, it was inside the corridor and that we were expecting for the remainder of the year was going to be inside the corridor. Q3 was inside of that corridor. So generally, we feel just fine about the development of our orders it's consistent with what we're seeing on the sales side as well. So we -- all in all, the book-to-bill is in good shape.

Yes. And Andy, regarding automotive and life sciences, I am proud and happy to report that we saw a strengthening -- a renewed strengthening in those. Obviously, those are not related to the data center spend, which is encouraging to see the broad-based nature of it. Automotive, we are seeing some green shoots of new projects. We've talked before about automobile manufacturers previously taking a pause as they shifted back from the surge in electric vehicle spending to recognizing that customers are still buying hybrid as well as internal combustion engine propelled vehicles, and we've seen some good projects. I mentioned one from a large OEM. And we've seen some really important competitive wins in terms of standardization on Rockwell's architecture that's pretty exciting, and these are around the world as well.

In life sciences, we've talked about that as a multiyear trend. Obviously, there are some specific marquee programs such as rollout of GLP-1 drugs, oral solid dose variance of GLP-1 is an important innovation that's driving a lot of need for additional automation, our MES had some important competitive wins in drug substance. So we've been used for a long time in other parts of life sciences manufacturing. We're seeing increasing competitive wins in drug substance, which is pretty exciting. So we like those wins, and we think those are sustainable growth factors.

I'll mention as well, we talked about 10% organic growth in the quarter. If you took everything out that was related to data center, our organic growth would still have been 8% in the quarter, and that's a good number.

Very helpful, Blake. And then maybe just on sort of the overall data center ecosystem business. Maybe the update us on the sort of trend to trade the sort of commercial controllers for industrial PLCs, like how much that's helping Logix and overall, like you've been very focused on the penetration in the e-commerce. So maybe talk to us about -- obviously, you raised the estimates for the end markets, but how much of this is Rockwell penetrating because the end markets continue to be strong?

Yes. I think you can look at additional share growth in the data center applications on top of a continually strong growing fundamental in terms of overall data center opportunities. To recap, 3 main areas of data center participation for Rockwell. There's -- the power distribution through our modular Cubic design. This was the acquisition of the Danish company we made a few years ago. There is our participation in -- with the chiller manufacturers in terms of power control. So think motor control centers, big drives, medium-voltage drives with the chiller OEMs, and then there's the work that Logix is being increasingly used for, primarily in the central utility plant. And so this is control of energy monitoring, it's emergency power, backup generator controls.

Logix has inherent redundancy and safety characteristics that you can't get in the traditional distributed digital control or DDC units. And so we're seeing increasing standardization on those units by the hyperscalers as well as the contractors as they're trying to put together modular, very repeatable designs that increase the speed to capacity.

Our next question comes from Chris Snyder from Morgan Stanley.

So I was following up on some of the commentary earlier that larger scale capital projects remain sluggish. So even despite that, the company has been able to generate very strong growth this year, almost 10% and healthy orders with the strength obviously being driven by the short cycle side, whether it's investments in efficiency or brownfield. So I guess the question is when you look at how the orders have developed your customer conversations into '27, how do you see these 2 respective sides of the business tracking? Do you think the short cycle can sustain the momentum we're seeing? Do you think there's reasons to believe that the large project business can show positive rate of change? Any color on that would be helpful.

Sure. Let me give some just general comments about trends as we look at fiscal year '27. Look, tailwinds, broadening of the growing verticals that we've been talking about. We don't see a reason that those are going to slow, which includes many that you're talking about. But it's not just short cycle. Energy was up high single digits. So there is contribution from process, which is to say that I don't think you can label that we're at a specific point in the traditional cycle that traditionally, you'd see short-cycle packaging, discrete followed by a couple of quarters by longer-cycle process.

I think the continued reverberations from COVID and supply chain shortages still have some impact. Data center makes its own weather, so to speak, which has an impact with the requirements for power to support data centers. So I think it's hard to pin a specific point in the cycle on where we are, but we're very happy to see the contribution across different verticals in discrete hybrid and process. We expect data center to keep on -- keeping on. We are happy with the renewed investments in automotive and life sciences. Home and personal care within consumer packaged goods was actually good in the quarter. Labor costs and shortages are going to continue to drive customer investment in automation as America continues to be interested in bringing more manufacturing on board.

That only happens in a durable way with the thoughtful combination of trained and engaged workforce with the kind of technology that we offer. New product introductions to continue to take share. We talked about that before. Productivity is going to be as important as ever. And you can bet that as we're going into the year, it's going to be a continued aggressive productivity that's driven a lot of our recent success, and we're going to keep doing that.

Pricing actions, Christian talked a little bit about that, and we continue to look at ways to further tune our ability to maximize price. And these are going to be needed because as Christian talked about, inflation is not going to go away. We're going to continue to expect tariff volatility, hope for the best, but plan for continued volatility there. And then geopolitical uncertainty is not likely to clear up soon. So that's kind of the headwinds and tailwinds that we see, but we like our position in the market.

I really appreciate that. And then maybe following up with a shorter-term question on Q4. I think you said margins flat sequentially. And I was just wondering, are there headwinds coming through that we should be aware of? Because typically, you see the margin step up on the higher volume sequentially into Q4. And then this year, it feels like, in particular, we're going from price/cost negative in Q3 to positive in Q4 which I would think is just an incremental tailwind to that margin ramp. So just anything to call out as we kind of think about that Q3, Q4 margin progression?

Yes, Chris, thanks for that. So yes, the sequential side, it really -- we're talking about in that sequential low single-digit up. It's all coming for the most part from the solutions project configure-to-order side of the business. That will have a negative impact from a mix perspective. And then on top of that, the inflation is still coming. And so we're expecting that inflation is going to continue to be even sequentially a drag against us. And so yes, the volume is going to be there, but it's going to be offset somewhat by the mix and the inflation side. So that's why we're talking about the sequential enterprise operating margin being flattish.

Our next question comes from Jeff Sprague from Vertical Research Partners.

My question kind of rhyme a little bit with one you just answered, but I was wondering if we could maybe just put a finer point on what the price/cost headwind was in Q3 and specifically what you were expecting in Q4? And just trying to get a sense then, Christian, if you're taking this question, I assume you are, like how do we think about how you're jumping off into 2027 from a price/cost basis based on that Q4 answer?

Sure. Jeff, I do -- the price/cost side, obviously, we had -- we're calling it out that it was a headwind for us in Q3. We do expect that, that's going to be an area that should be positive for us in Q4, but it is against a rising inflation. So we're probably not going to dimensionalize exactly what the numbers were in the quarter. Just to let you know, though, that in Q3, just to give that as an example, when we break out that core growth that we had year-over-year, volume was the biggest driver. Mix was the second biggest driver, and there was just a small partial offset that happened from the price/cost negativity.

So when we turn to the next quarter, again, we expect it's going to -- price/cost is going to be positive for us in the year-over-year, that's the important aspect. The sequential side, yes, we're expecting we're going to make some good progress with the price coming in, but the inflation is going to be higher still yet.

And I guess that implies in volume in Q4 is not as robust as what we saw in Q3, if I'm interpreting that correctly.

I think it's -- think about it from the mix side that's happening there, too. So when you have sequentials that with Software & Control, we're calling out flat sequentially. There will be some pricing there sequentially. So the volume is going to be a tick last. But at the same time, we're still talking Software & Control being up teens year-over-year and expansion of margins by nearly 200 basis points on the segment margin for Software & Control. And obviously, those are tough comps that we're talking about in the fourth quarter. That is our toughest comp of the year in Q4.

Our next question comes from Andrew Buscaglia from BNP Paribas.

I wanted to touch on -- along the line of questioning, Software & Control margin. You've done a lot of good work this year to get those margins even higher and organic growth has really picked up, but you're running into some pretty tough comps in 2027 and a really high bar for margin. I know you -- I know you don't want to give 2027 guidance, but can you set us up for how you're thinking about Software & Control as we move into next year, just given the high bar we're looking at?

Sure. I'll make a few general comments about its position in the market and then Christian can add some additional detail to that. But we're only just now getting to and through the units of controllers shipped that we were at pre-COVID coded. So there was a lot of volatility over the last 6 or 7 years. And so we're going to exceed the unit volume in Logix controllers, which drives a lot of the Software & Control performance this year. So we're happy about that. But think about the underlying market growth, natural market growth that would have existed had it not been for these exogenous events that we get to, plus gaining market share in these areas, and we do think that we're gaining market share in controllers.

So while we're very happy with the growth and the performance, which doesn't just happen passively. It happens by innovative new designs and managing costs and deploying investment to the areas that we, with our knowledge of the market, believe we're going to yield the greatest growth, there's a lot of opportunity. We're not hitting anything close to in essence of where we're not going to be able to continue to grow and to perform from a profitability standpoint.

And then specific around Software & Control margins, yes, it's been a great story for the last 2 years has generated a lot of expansion of Software & Control margins, and that's been predominantly driven by the volume side. Price has certainly been a big help. As we start thinking about 2027 in the setup, yes, the memory cost and inflation is going to hit that business hardest. There are pricing actions that we have taken. We'll continue to evaluate that. And as Blake had mentioned, we'll be dynamic around our response around that.

The key, though, is that when we're talking about mid-30s almost segment operating margins and you're thinking about the pricing changes to be able to get margin expansion off of the price alone, that's really hard to do when you're talking about that kind of inflation. At the same time, volume should be a help for us. We're -- it's early to give a view on where we exactly think we're going to be for '27. Obviously, that will be a quarter from now. We'll give that initial outlook. But we're talking about low 30s for total segment operating margin for Software & Control for the full year 2026. I think we have the opportunity to continue to build off of that.

Okay. Yes. And the other question I had was around kind of your 2 problem areas or weaker areas, automotive and food and beverage are big, chunkier sales, but both are indicating higher growth this quarter. I'm wondering -- how much of that is easy comps or true demand picking up in either one of those markets?

Yes. I think you should look at that as a positive read on demand as well as our offering. So automotive in the teens, its a good result. It's a good result last quarter as well and we cited renewed -- some renewed project activity there. I'm not ready to call that the flood gates are open, but we've seen some nice wins beyond modernizations in new projects.

The thing that drives the most spend in automotive through the cycle is model changes. And as people are recentering on hybrid and internal combustion vehicles then we've seen some great wins as some of the big brand owners have standardized on our designs outside of our traditional end customers. Food and beverage is our single biggest vertical. And even without CapEx, we're seeing mid-single-digit growth. So that's not bad. Where there is another gear to be had, so to speak, if CapEx does pick up there. And we're doing that through our domain expertise, our offering. And so people are going to continue to want to eat. And so we think it's a good long-term market to have such a strong position in.

Our next question comes from Noah Kaye from Oppenheimer.

Maybe we could sort of level set on where we're at in the production logistics growth strategy. We're sometime now into the auto integration. You continue to launch more offerings for orchestration, production logistics. It feels like some increased wallet share capture is driving some of the outgrowth that we're seeing. But I would just sort of love an update on how you see the integration and what the growth prospects look like.

Sure. I really like our position in so-called production logistics. In addition to the people who make their living moving parcels or packages around, production logistics as a part -- especially of consumer packaged goods is being seen by the customers as a really important and maybe previously overlooked area of additional productivity for them. As they added a lot of fixed automation in the make line, if you're making shampoo or packaging bread or what have you, but bringing the material, the packaging material, the components to the line and taking it away to the loading dock or into the warehouse, that's really where production logistics is focused in those areas.

Independent cart technology plays a role in that. We're having a good year with iTRAK and MagneMotion. The auto mobile robots, we'll see another year of strong double-digit growth. We continue to work on the profitability there and we expect that will be profitable and Clearpath in the fourth quarter.

But in addition to the consumer areas, you also see opportunities for this in semiconductor, for instance. For instance, with wafer transport in operations that previously used forklifts to take material over long distances. You see it in life sciences opportunities there. So we really think that we have the portfolio to be able to address this across multiple industries.

And one of the things that's important is to make sure commercially, we have the right coverage in these areas. And so we've spent some time looking at making sure that the customers who are most interested in this have good commercial coverage by us and our partners. So it's a good area.

I think to your question, we're early in the growth opportunity in production logistics, and we continue to build it out.

And then just a follow-up question on CapEx trajectory. We're coming in around 3% of sales for the year here, as you said in your remarks. I think talking in the past about this potentially stepping up to 4% in coming years. You talked about the $2 billion of investments that you're making. Can you maybe just give us a refresh on the trajectory there? Should we be gearing up for that sort of 4% that step up next year?

Yes. So we are expecting that next year, we're going to be spending more CapEx than this year. But I do think we're still going to stay in that 4% or south. We do have a greenfield project, obviously, that's happening in New Berlin. Wisconsin, we'll start making investments at pace as we turn and look at '27, that will take us into '28 as well.

Now important, ROIC for us has actually -- has recovered nicely. So even with that higher investment level, we still feel like the trajectory is going to be good with ROIC, EBITDA continue to grow. So we're really liking the returns that we're getting right now on the legacy part of the organization, but also the investments that we're looking at for the future. We're feeling like they're going to have a really strong ROI that's going to be accretive to the organization.

Julianne, we'll take one more question.

Certainly, our last question today will come from Joe Ritchie from Goldman Sachs.

So just a lot covered today. I just have one question just around the S&C margins in the fourth quarter. So I think if I'm doing the math right, you're essentially forecasting 4Q S&C margins to be below 30%, so call it somewhere in the high 20s. I'm just wondering, is it possible to help bridge that, right? And I know that there's -- you talked a little bit about price/cost, you talked a little bit about mix, but I'm just having a hard time bridging the sequential decline from 3Q to 4Q?

No, we actually are -- we're not looking at it to be in the 20s in Q4. We're looking at to be in the low 30s. That number actually is going to be probably closer to let's say, 33-ish, which is about what the average is going to be for the full year, I think, if I'm looking at the numbers correctly. So yes, and again, that sequential side is really more of the inflation coming in with the volume or the top line being flat. So that's really how the math comes together.

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

At this time, you may disconnect. Thank you.

We're on day 3 of the Wells Fargo Industrials Conference and very pleased to continue the discussions with Rockwell Automation, and thank you very much to Matheus Bulho, who is the SVP of Software and Control; and Aijana Zellner, who's the Vice President of both Investor Relations and Market Strategy. Thank you for being here. Really appreciate it.

We're going to jump right into the Q&A. And let's just start on the demand backdrop. And so we did -- we've seen really good organic growth, particularly in Intelligent Devices and Software & Control. That growth actually seemed to accelerate from Q1 to Q2. A lot of focus on pull forward or what exactly is contributing to some of the acceleration. So maybe just set the stage for us on what you're seeing out there.

Sure. I can start. So in terms of the outperformance, products have been outperforming the longer-cycle business for several quarters now. So that's how you see ITD, Intelligent Devices and Software & Control continue to see good growth. And so in our most recent quarter, Q2, we saw good growth across many industries. Still a lot of focus on smaller modernization projects, efficiency, productivity, overall effectiveness of existing facilities.

With that said, we did see kind of broadening of the demand and larger projects across a number of additional industries. And so when we talk about semiconductor, data center, e-com and warehouse automation and parts of energy, that's where we saw a combination of brownfield projects, but also more larger projects. So that was certainly very encouraging. We increased our outlook for those end markets for the full year.

And if you look at other industries, food and beverage, automotive, they performed well in Q2. We saw good activity, but mostly tied to smaller initiatives, small modernization projects. And so we don't count on larger CapEx activity in those end markets for the rest of the -- our fiscal year. But overall, we do continue to see good growth, and we increased our guide to 7% for the full year.

And just that last comment for the rest of the fiscal year, when we think about larger projects, what does the pipeline look like on the larger project side of things and conversations that you're having with customers right now?

Sure. Well, we can start with discrete industries. If you look at e-com and warehouse automation, we continue to see good projects, could be large brownfield retrofits. There are a lot of warehouses and sortation facilities that are still pretty manual today, and they will continue to invest. Labor scarcity, labor cost continues to be a good driver for that increased automation need. And so we see that acceleration in that spend across different customer segments within e-commerce and warehouse automation. Parcel companies, e-commerce players, traditional retailers, all of them are investing in their facilities. So we do see continued expansion there.

Data center, a lot of it is greenfield. We, of course, have an opportunity with retrofits as well. But with a lot of new data center build-outs and the AI workloads that are driving the need for our offerings, including our PLCs, we do see continued durable demand there. And then semiconductor as well. We did see some pickup there, and it's both on the core semi with the legacy fabs, but increasingly also with the AI-related data center-related investments as well.

Got it. Yes, we'll get into data center a little more low single digit of percent of revenue, right, but probably 2/3 of our discussion last night at dinner. On customer spend and when we think about product spend versus larger project spend, what is the average spend for Intelligent Devices or Software & Control versus something in Lifecycle Services or configure to order? Is there a spend threshold that you're seeing customers not really willing to move forward on those bigger bill of material projects?

It's not necessarily a particular dollar threshold, but it's really what the customer is trying to do. So if you look at the dynamic of the smaller modernization projects, it's where customers feel they have a scope, they have a clear ROI and they can get it done and it's going to drive that efficiency and it's going to effectively increase their existing production capacity by increasing their throughput, increasing the quality.

What they're kind of holding off on is just larger, longer-ranging CapEx projects because trade uncertainty is still very persistent, right? We don't have clarity on USFCA. There's still a lot of changes on the policy front. Geopolitical volatility is not helping get customers more confident with our decisions. But -- so that's kind of broadly what we're seeing.

Now with the particular strength we saw in Q2 with bigger projects, if you think about data center, semiconductor, warehouse automation, those are good products that come from Intelligent Devices and Software & Control segment, right? So we're going to talk about it later, but it's our Logix PLC, it's our control architecture, it's our cloud-native software, it's our variable drives, it's our sensors, it's our AMR portfolio. So it's really a lot of different pieces that come together.

Now the reason Lifecycle Services as a segment is not seeing that uplift that ITD and Software & Control are seeing is just it so happens that there is not a lot of solutions content that goes into the business of data center or e-com and warehouse. So there, we predominantly sell products and software and then someone else largely solutions for the end user.

Got it. On the channel inventory side of things, just in terms of your assessment of how those inventories look, but also how the tools have evolved that you use to track this and sort of help with that comfort level?

Yes. So we have much better, much better visibility into inventories out there than we had relative to pre-pandemic. Pre-pandemic, we were primarily a book-and-bill business. So we didn't have as much attention into this space. But since then, we've kind of built out quite a few muscles to help us prevent and avoid to the degree we can, any type of prebuy and excess inventory out there. So there's quite a few areas. At Rockwell, we have -- we manage our distributor inventory. So we have a good understanding of what they ship and what they place on us, so we can -- we have a good sense of the terms that they're operating with.

We've also put in place controls around unusual order patterns where we evaluate based on historicals and we probe for more details when we see something that's unusual. That's not just on the magnitude of orders, but also in the composition of certain orders because we know how systems are generally composed. So we see -- if we see a significant mismatch between different parts of the system, we'll also inquiry and evaluate. And to be frank, in some cases, in quite a few cases, we've rejected and canceled orders based on that.

What we don't have as much visibility into is into the demand that goes into our end customers like the OEMs and so on. So to compensate for that, we have been executing now for quite some time surveys that are against a proxy sample of customers and a proxy sample of industries where we evaluate based on their feedback. And so far, we don't have any indications that prebuys are any meaningful contribution to the results.

And then on Middle East, you did note that some activity in Lifecycle Services had been pushed out. Just what you're seeing there? Any quoting activity, how you think about a time line for folks to reengage?

Yes. As we mentioned on our Q2 earnings call, we do have some exposure. It's very limited to the Middle East. It's now even smaller with the dissolution of our Sensia joint venture. We do still have opportunity on the recovery and rebuilding. If you look at our portfolio, our ability to serve, it's more of a longer cycle business. So the impact will be really most likely in fiscal '27 and beyond. But we do see opportunities in that region, but also broadly in energy.

As we talked about, energy is 15% of our total revenue. You have traditional oil and gas, you have power generation, you have renewables, including carbon capture and wind and solar. And we're well positioned to play there because our technology is used across -- the same technology is used across all of those different applications. And whether it's LNG, whether it's gas-powered microgrids, whether it's building out infrastructure for data centers, whether it's energy resilience, right, closer to where we are, we're well positioned.

And so that's part of why we increased our outlook for energy as an end market for the full year. We expect to grow high single digits. And we do think there's opportunity there beyond that.

And then moving to pricing. You've got, I think, 2.5% of price in the guide for this year. There's some tariff-based pricing tied to that. But just how the pricing strategy at the company has evolved, different tools that you're using? Do you feel like you have more that you can do there on the pricing side?

Absolutely. Rockwell has been a premium price supplier in the industry for quite some time. Historically, we've been realizing about 1 point of price if you look back many years. We -- certainly, during the last supply chain -- during the supply chain crisis where we had a really kind of an inflationary chip environment, and it was important to increase prices very quickly. We have changed our methodology, and we became much more agile.

So we put different mechanisms in place, like, for example, moving from fixed contracts to fixed discount. So we are able to actually instantaneously increase prices across our customer base to respond to different things. That's been very helpful, right? So we've become much more resilient, much more agile. We invested in software and optimization to give us more visibility into pricing by customer, by region, by industry, by application, so we can be much more surgical about how we do price.

And then, of course, driving more price discipline across our customer base so that when there are discounts, when there are negotiations, it's really for the customers in the areas and initiatives that make the most sense and increasing that yield. We certainly have had much higher price -- we had much higher price realization in fiscal '25 than we've had over the longer periods of time. This year, in fiscal '26, we're guiding to 250 basis points of price, of which 100 basis points of tariff related and then 150 basis points is underlying price. We think there's continued room to grow over the coming years.

We have the differentiation. We have the ability to realize price. The current environment in terms of inflationary costs and tariff, certainly, it impedes our ability to continue driving higher underlying price beyond what we're doing. But we think broad the longer term, we're well positioned and pricing is a great lever, one of many levers for us to continue expanding our margins.

And then just related to the chip side of things in terms of availability, any challenges out there as well as how you're approaching the pricing side of that?

Yes. We talked about input costs for us. We don't have as much exposure to commodities, raw materials, but we have some. The biggest really element for us is memory chips. And it just so happens that a lot of it goes into Matheus' business Software & Control. So as we all know, the cost for memory chips continues to increase. And we talked about expecting double-digit millions of headwind in our second half. So that certainly is inflationary and it continues to escalate. We have great mechanism in place to offset and mitigate these increases with price as we've demonstrated over the last several years.

The challenge is really the timing. As we mentioned in our Q2 earnings call, we will offset this cost increase with price, but it's not going to necessarily align perfectly in any particular quarter, which partly explains why we expect Q3 margins and especially in Software & Control to not be as high as they were in Q2, but we feel like we have it under control.

And moving to Software & Control. And so let's just start a little bit of background in terms of what exactly is the value that you're delivering to customers, why customers are choosing Rockwell over competitors?

Yes. Yes. So there are quite a few vectors there of value creation. I'll point to a few here, but -- and I'll start with the -- today, what we do, we are 100% focused on production systems. So all of our employees every day, that's what they're dedicated to. And we have -- we feel pretty good. We have a full stack. There are no major holes in our portfolio. And that's important because increasingly, the challenges that our customers face, they are system concerns. They are system problems.

So you think about things like cybersecurity, functional safety, data, even AI. So if you're coming into a system and you're only contributing to a piece of that system, you don't have as much opportunity to create value and differentiate. So we are set to disproportionately benefit from that need across our customer base, and we have been continuing to win against some of the more niche smaller suppliers because of this trend.

The other significant value creation we provide to our customers has to do with how we've approached and modernized our portfolio. So things, for example, the fact that we've been first to cloud in many of our offerings has allowed us to kind of incorporate technologies that create significant value for these customers, such as AI a lot earlier, literally months after they've been made available for consumption by us. We already had solutions out there that were creating value for these customers. So our speed to innovation has significantly increased because we put ourselves in a position where we can continue to grow there.

The third piece is, especially in this region, we have the deepest relationships with the customer base. This is the place where the workforce is trained in our technology. This is the place where we are essentially providing the lowest risk for anyone making investments in this region. So the strength we have with our partnerships across not just the customer base, but our channel has created a significant advantage for this company, and we're disproportionately benefiting from that.

And what about the go-to-market approach? How siloed is that approach within Software & Control as opposed to partnering and Intelligent Devices and how you're doing that.

Yes. So it's -- we have one sales organization that approaches our customers as a system. And it's very common that in a system, you have contributions from our segments, not just one. So for example, a typical -- at a higher level, a typical automation system has input devices like sensors, like push buttons, things that are sensing what's going on in the system. All of those come from Intelligent Devices. Those inputs, they get fed into a control system that is actually processing those inputs. It's also exposing data and interfacing with operators, operator decision support and operator interfaces. The networking infrastructure that's there. It's -- all of that is Software & Control.

And then once that's resolved, it gets reflected back into actual physics that have to be controlled and actuated. So things like motor control, robot control, output devices, power distribution, all of those are back into ITD. And then obviously, we have our service organization that partners with these customers sometimes in the delivery of those solutions. We're happy to partner with others that deliver the solution themselves. And then we come in at the -- after the solution is installed to manage and support that installation with Lifecycle Services. So it is very common that a particular system includes all of our offerings.

And then you're offering both software and hardware. I've heard in the past, Logix is around 50% of the mix. Talk about that other 50% and the software and hardware that sits within that.

Yes. So specifically in the Software & Control segment, the majority of our revenues are coming from hardware. The hardware includes a significant amount of embedded software. A lot of the differentiation comes from what the hardware does and what the hardware does is governed by the embedded software that's there. But the majority of that gets delivered as hardware integrated with that embedded software. And then, yes, we do have a meaningful software business.

And as I mentioned before, full stack when it comes to a production environment. So today, our software part of our portfolio is used to design production systems. So things like digital twins, things like how you program the automation. And then once the automation is in place, you have software that's used, as I mentioned, to support the operator. So visualization systems, human machine interface, operator interface, decision support there. On top of that, you have software that's used to execute production, things like our MES. They take orders and they execute and orchestrate the utilization of resources in any particular production system.

And then we obviously have software that is used to maintain these systems. So things like disaster recovery, our CMMS on how we manage work orders for maintenance organizations and not just reactive maintenance, but increasingly in preventative and predictive maintenance capabilities. So we feel pretty good about the full stack software capabilities across the spectrum there.

We'll talk about the opportunities that AI present for you, but also to address the potential challenges or threats that are out there. And so what is it that you're watching out there in terms of that software stack and what new entrants could potentially even have an opportunity at?

Yes. We -- AI is a tremendous opportunity for automation. But just to address first your point on some potential concerns there. We feel pretty strong about very durable, durable moats. And I'll point to 3 here. The first is, as I mentioned earlier, a big part of our software portfolio is deeply integrated with the embedded system, okay? So it's highly integrated. And there are many reasons for that, including the resiliency and cyber concerns and safety concerns. So you use AI, but it has to go through our software, okay? So that's one strong moat that we have there.

Another part of our software is software, as I mentioned earlier, that is running production, that's executing orders and orchestrating resources. Those are deterministic systems. Those are systems that are applied in regulated industries. They need performance and they need consistency. It is not acceptable in manufacturing for you to have outcomes that are approximately right. It's not acceptable for you to build cars or to create drugs or food that are approximately right. And they have to be consistent over time. So inherently probabilistic outcomes are unacceptable, not just not desired. They just -- they just play not useful.

And then the third moat we have is open source software that has existed for a long time. And the reality is in automation, you need a tremendous amount of domain to be able to understand what software needs to do, how it gets used. And then on top of that, the real cost in software used in production system is not much to do with the creation of the software itself, but it has to do with the life cycle management of that software. So those are pretty strong durable moats that have sustained.

But just to touch quickly on the opportunity. AI is a tremendous opportunity to do many things across the stack of an automation system. But the biggest opportunity really is in simplifying what it takes for people to consume automation, consume in the form of designing, operating and maintaining.

The single largest barrier to more automation density is the complexity, is the complexity of deploying and maintaining and supporting and AI with these virtual workers, if you will, are there to help you lower that barrier, so more automation can be used for -- in more production systems over time. So we feel very, very good about AI as a tailwind and as a significant propellant of more automation demand and across the industry.

What are you seeing in the cyber threat environment in terms of an acceleration of instances of threats, higher sophistication as people are using AI in that realm, what you're doing with your business to defend?

Yes. So there is -- we have been investing for a very long time in the resiliency and the robustness of our products. It's a significant part of our spend. It's also why I say what I said before that increasingly, these are system concerns. The reality is the cost to play in automation continues to go up. I wouldn't be surprised if you see some degree of consolidation because not only you can't compete if you're just a little piece of the system, but for you to sustain.

And a good example of that is what's about to come online in Europe with Cyber Resiliency Act, where there are specific requirements for what level of security strength your system needs to have for you to just be able to supply in an automation system. So we welcome those because they disproportionately benefit Rockwell. We built capabilities not around just the strength of our products, but also, as you've seen, capabilities around our Lifecycle Services organization and security assessments, including acquisitions we've made to enhance our ability to support our customers and frankly, bringing resiliency.

We expect that certain industries will see higher pressure to strengthen their industrial systems earlier, things like critical infrastructure, food and beverage, life sciences, and we expect that will continue to propagate, and we see that as a good thing.

And then to touch on data centers. You talked about hyperscalers increasingly adopting the industrial logic platforms from traditional -- a shift from traditional kind of DDC type of controls. Explain to us kind of what that shift means for those customers, what you're able to provide and what the revenue opportunity is like for you?

Yes. I mean this has been a very good business for us and frankly, a no-brainer value proposition to our customers. The shift is strong from traditional controls. DDC controls have been designed primarily to manage general buildings. These are things like this particular building that we're in today. And that's okay. But data centers are increasingly more critical, mission-critical operations, more like factories where you care a lot about the availability of the system.

So with our system, we have an order of magnitude greater availability. So what we call our Logix runs today 5 nines, so 99.999% availability. And you can imagine what the cost of downtime, we've always dealt with cost of downtime in any type of production system. And in data centers, the cost per minute is significant. So just on the merits of availability, Logix has been easily justified. But there are many other reasons as well.

One of them is cyber. A lot of these traditional systems, they use networks that are relatively old that don't employ capabilities like encryption even in their communications. There's also an element of performance. The certain data centers and server racks can swing in the magnitudes of megawatts in the span of a minute and you need response and you need some degree of real-time control there. And there's also a component of longevity because these industrial systems are designed for longer life than commercial technology out there. So there are many, but -- and we'll continue to see growth there.

And I think the way you framed it is data center today is a low single-digit percent of revenue for Rock. In the not-too-distant future, it could be around 5%. When you think about that growth path, is that more on the Software & Control side? Or is that more with something like Cubic on the ITD side?

Yes. So today, you can think about there's a few offerings that we provide. One of them is what I just described, Logix being used to manage the infrastructure, the building. The other strong vector we have is with our acquisition of Cubic. Cubic has a fairly innovative modular system that is used to package gear, essentially switchgear packaging technology.

To be completely transparent, we made that acquisition way before this data center boom. And we have a line of motor control centers that we participated in the market for a very long time, and that's innovative technology that has also helped us modernize and innovate in motor control center, but is strongly -- it's a great fit for data center technology there, and we've seen good growth.

And then obviously, because Logix is also there in controlling and managing the building, there are certain parts of the equipment used in building management, like things like chillers and fans and pumps that also leverage ITD technology like our drives that are used to control those systems. So it's a good amount of scope there.

Then on Software & Control margins, reached 35% in the second quarter. I think the guide embeds that it's not going to stay at that level as we move into the back half of the year, but talk about that progression as we move forward and some of the puts and takes on the margin side.

Yes. We had a stellar quarter in terms of margin performance for the whole company and of course, in Software & Control specifically. The biggest driver for the company and for the segment was really volume. So you have volume, you have really good price cost, inclusive of productivity and all the work we've been doing to drive structural cost out, whether it's on a direct cost to produce, whether it's our logistics mode, manufacturing efficiencies across our operations that are helping every segment.

So it's good productivity also in SG&A, our functional spend. So we saw good contribution from that and mix even within Software & Control, we saw good growth in Logix, as we talked about, over 20% and high single-digit growth in software. So those are higher-margin offerings within Software & Control. So it was a confluence of a lot of great things that happened, and it was a great quarter.

As we look to Q3 and Q4 and specifically Q3, we talked about increasing input cost inflation, specifically on memory chips that does disproportionately impact Software & Control. And so while we do expect to offset and mitigate those cost increases with price over time, as we mentioned, it might not be perfectly aligned in any particular quarter, especially in Q3.

And so we do think it's prudent for us not to expect that same level of perfect storm of everything going right for us in Q3. So we expect sequentially margins to be slightly lower. But for the full year, still expecting Software & Control margins to expand several hundred basis points year-over-year. So we're really on a good trajectory there.

And going through a multiyear history where there was a period of stocking and a period of destocking and now in an environment where you're comping against some of that. But moving forward, the comps will get tougher. I think expectations out there for something like mid-single-digit, high single-digit organic growth in Software & Control as we move into the back half of the year. Is that roughly aligned with the guide? Anything that you observed in that, that you would call out?

Well we talked about our expectations of low double-digit growth for the full year in Software & Control. So that implies sequential -- moderate sequential growth, and we'll see where we are. But yes, low double digits, so certainly the fastest-growing segment for the company.

Yes. At the Investor Day last year, the company outlined a $2 billion investment plans over a multiyear period of time. Talk about software and controls kind of role in that? What the opportunities are? Do you see a higher percentage of that spend as the company is looking at the multiyear investments?

Yes. Yes. So yes, we did communicate that indeed. The majority of that investment is in CapEx. And frankly, the -- a lot of that is in the U.S., and that includes investment in our people, investment in technology. We're ourselves transforming our operations into more autonomous systems. and frankly, also brick-and-mortar. So we're building new capacity as well there.

From -- the reason we're making that investment is largely in the service of continued margin expansion and customer service. We feel very strong about achieving the targets that we have already communicated. You talk about Software & Control, we have this margin corridor of 31% to 34%. We have already been in that corridor for the last 4 quarters, if you will. We haven't put the full fiscal year yet in that, but we feel pretty strong of doing that independent of this investment. And we have obviously our enterprise operating margin target of 22%. So all of this is in the spirit of fueling further margin expansion beyond that and indeed, transforming manufacturing for ourselves so we can continue.

And to your question around all of the self-help initiatives we've put in place, including our productivity, all of those items, including what we do in sourcing, what we do in transportation, logistics, what we do in more automation and reducing our cost to produce, all of those are directly applicable to Software & Control just as much. So both -- frankly, all 3 businesses, including Lifecycle Services because we have solutions that include panels and things like that, that we construct, all of the 3 segments benefit from those quite strongly.

I think maybe time to squeeze one more in, but really on capital deployment and opportunities there because you talked about there could be pockets of the market where there's an opportunity for consolidation. Rockwell has said back in the game in terms of M&A. But then also Software & Control spends a high percentage of revenue on R&D, right? And so it's the organic opportunity versus the inorganic and where are your priorities?

Yes. So R&D is the lifeblood of the company. We have full intentions to continue to innovate. I know that we run at about 8% of revenue as a company. And as you stated and correctly so, Software & Control, as you would expect, is higher than that in the teens and low teens, and we'll continue. We'll continue that investment. And in terms of acquisition, absolutely. We are very open and interested and serious about continuing to evaluate opportunities that fit in our channel, but we'll likely focus on profitable acquisitions that we can -- if not accretive, that we can make accretive in a reasonable amount of time and also acquisitions that help us continue to propel and expand share gains in frankly, in regions where we may not be as strong.

Perfect. Well, I think that brings us to the end of our time. Thank you very much. Really appreciate it.

Thank you.

Thank you very much.

All right. Good morning, everyone. Welcome to the session for Rockwell Automation. I'm Quinn Fredrickson, Senior Research Analyst at Baird covering advanced industrial technology. Most of you are probably aware, Rockwell Automation is the largest pure-play industrial automation and digital transformation company.

With us today from the company, we have Tessa Myers, to my right here, who's the SVP of Rockwell's largest reporting segment, Intelligent Devices. And Aijana Zellner, who's Rockwell's Head of Market Strategy and IR. So Tessa is going to open up with a few comments, and then we'll swing right into Q&A.

Okay. Good morning, everyone. Thanks for joining us. I thought I'd just make a few comments about the company to give you a little bit of insight overall to who we are and our focus for those of you that are both familiar with the name and where we might be new to you. We've built a more resilient and diversified Rockwell Automation over the last few years.

As you can see, our industries are quite diverse. We have a meaningful amount of our business in discrete industries, areas like automotive and semiconductor, in hybrid industries where you have both packaging and processing, discrete and processing type applications, areas like food and beverage, health and personal care, life sciences as well as a meaningful portion of our business in the process industries, areas like energy, mining as well. We've also increased the diversity of our revenue mix. And so we've added annual recurring revenue to the company. That's a combination of both Software as a Service as well as high-value managed services. It's a fast-growing part of the business. It represents over 10% of our revenue to date and it is a representation of us adding new ways to win to our capabilities.

We've also, over the last few years, redoubled our focus on operational excellence. And you can see that in how we're expanding margins of the business so far this year.

We have a range of solutions that are really broad-based, are horizontal and cover a wide range of industries. Our focus as a company is really in the production environment and how do we help manufacturing and industrial companies be more efficient and more sustainable. And -- we introduced this growth framework at the start of our fiscal year '23, and it really outlines the expectation for profitable growth and adding new ways to win to the company. It combines what we think are secular trends and growth in automation and digital transformation with our confidence in our ability to gain share and expand our served market. It has annual recurring services and software contributing to our growth and a modest contribution here over the cycle with acquisitions adding about 1 point of growth. So that is about 5% to 8% organic growth through the cycle that we expect to achieve.

We take a very intentional focus on the industries that we serve and in addition to our traditional markets in areas like automotive and food and beverage, we've added areas like data center and e-commerce and warehousing which are fast-growing industries for us today.

There are a few enabling technologies that are important for us as a business. Software-defined automation is really across the automation content that we deliver and evolving that to a more software-defined environment, artificial intelligence, and we'll talk about that a little bit. I'm sure today of how we're leveraging that and embedding it into our capabilities to add value to our customers. And integrated robotics, the combination of integrating fixed robotics into automation systems as well as autonomous mobile robots to move materials through a plant. These are all important areas of growth for us and how we are expanding the value that we are delivering to our customers.

Back in FY '23, when we introduced our growth framework, we also introduced margin targets for each of our operating segments across Intelligent Devices, Software & Control and Lifecycle services. And all of our businesses are either at or moving towards these margin ranges driven by volume, price and the work that we're doing around productivity. And we expect to move into this range and our goal is to move to and through this margin range. So with that, I'll -- I think we can start the Q&A.

Awesome. Thank you. And for the audience, any questions you can submit it to [email protected].

Aijana, maybe starting off for you. I just want to ask about the demand picture. You're coming off your March quarter where you noted some broadening out of demand. And you felt compelled to raise your core growth by a fair amount for Rockwell, I think, 3 points at the midpoint. Where are you seeing the most genuine demand inflection out there versus just easier comps? And how durable does this feel as you look out over the next several quarters?

Sure. In the first half, we did have easier comps from a year-over-year standpoint, really for the whole company for certain industries. But with that said, we did see a very strong performance in Q2 across a number of industries, across discrete hybrid and process end markets.

What really surprised us and outperformed were really three or four industries. So data center, semiconductor, e-comm and warehouse and energy. And while other industries performed well and grew including automotive and did great and actually better than we expected, we didn't see a market change there in terms of CapEx activity. You still see a lot of projects being focused on productivity, optimization and efficiency. But the markets that I just mentioned earlier, they are seeing quite a bit of project activity. And so we felt comfortable and confident increasing our outlook.

Data center business more than doubled for us in Q2. It's not a big part of our revenue yet. It's low single digits. That's sort of our total revenue, but it's growing strong double digits. We did increase our outlook for semiconductor for the year and for e-commerce and warehouse automation that was already slated to grow the fastest. And we do see some opportunity in our energy market, which is about 15% of our total revenue.

So it is encouraging to see a broadening of this demand across more industries. However, we're not seeing a broad-based CapEx recovery yet. So if you look at some of the big markets for Rockwell, food and beverage, 20% of total revenue, automotive about 10% of total revenue. We're seeing some activity. We did see some program releases, great wins, but not quite the CapEx activity that is really needed to change our guide even further.

So there's some opportunity out there, but the way we're looking at right now is 7% top line growth at the midpoint. And if there are some more program releases in other areas of the business, then that could take us to the higher end of our [indiscernible].

What do you think, based on talking with customers, what's holding back in some of those markets where you're not yet seeing that broader release of CapEx? Is it just geopolitical uncertainty, interest rates? Just what do we need to see to get that broader unlock?

Clearly, trade uncertainty has been getting back for quite some time now. The increasing geopolitical volatility is not helping. The input cost inflation is coming with that is not helping. And of course, everyone is watching consumer health in terms of the end markets that they're serving. So there are a lot of elements out there and the environment needs more stability to be able to really feel confident with the bigger, larger CapEx outlays.

With that said, as I mentioned earlier, there are industries that are investing even today and are -- and it's both brownfield upgrades, but also greenfield as well.

And Tessa, just diving in a little bit more into your segment. The product side of the business, much of which is captured in Intelligent Devices, did see a significant step-up in the second quarter. And I think you called out some strategic AMR wins. But can we talk a little bit more about what drove the inflection there? How much of it was maybe end market inflections versus new products?

Yes. So we had solid growth in Intelligent Devices in Q2. We were up 9% organically. In that business, we have a wide range of automation products that are part of Intelligent Devices. In the business, our motion control business, so high-precision motion control, our input and output devices the kind of the inputs that you wire sensors into and run logic and then trigger an output for the machine to perform an action, the I/O portfolio as well as our sensing and safety portfolio where we have a range of smart sensors and industrial safety technologies.

So we saw broad growth across those product categories in particular. Those are areas that we have a customer base in terms of machine builders. And so we saw a pickup in our machine builder business related to those product lines. And we also introduced some new products. We introduced the next-generation IO platform at the start of this fiscal year, and we're seeing good adoption in that as well.

We also have a part of the Intelligent Devices business that does go into data centers. And so that's our Cubic power infrastructure products in our industrial control products. And so we saw data center as a contributor to the growth in Intelligent Devices in the quarter.

And I would say lastly, you mentioned it, our autonomous mobile robot business, automotors, we saw nice growth in the quarter and into the first half of the year.

Okay. Maybe you can -- can we take a step back and frame up your broader strategy to address production logistics a little bit more? Maybe just what enables you to win if you can describe your logistics portfolio, why it might be differentiated?

We really launched a focus on what we call production logistics at the start of 2024. In production logistics is the concept of fully automating end-to-end material movement throughout a manufacturing plant. So today, there's a lot of labor that still goes into manually delivering materials to a line and taking those materials away -- finished goods away warehousing and distribution environment.

And so we saw a significant opportunity for our customers to really automate that process. And so production logistics is a combination of intelligent material movement technology, so that's integrated robotics, autonomous mobile robots, independent cart technology, which is really kind of smart conveyance systems. Adding that to operations management and fleet management software that helps to plan, schedule, execute work orders in a manufacturing environment, and the consulting and engineering capabilities to really wrap around that to help customers understand where are the biggest opportunities for productivity and help them implement that solution.

And so one of the biggest challenges in automating the full end-to-end material movement is the integration of mobile equipment into the production environment and integrating it into the fixed automation and fixed assets that you have. And so we really felt like there was an opportunity adding autonomous mobile robots to our portfolio for us to really enable customers with this end-to-end capability and really break down that barrier of adoption to make it easier for them to implement.

How about within CPG, I think you've mentioned or Blake mentioned on the conference call some newer offerings there. Could you maybe share what some of those newer offerings that you're having success with are? And I think it's specifically geared more towards midsized customers. So are you seeing your share rising with midsized customers?

Yes. I mean, food and beverage is part of our consumer packaged goods end market right? And so food and beverage, home and personal care, and we have very strong market share, strong moat there with our solution, given it's a hybrid end market.

Specifically, when we talk about mid-market, we have a great distribution channel. We have distribution -- distributors who are selling to those small and medium businesses in the U.S., and it's a great opportunity for us to amplify our business. We -- of course, they sell our core offerings, our largest controllers, our drives, our on-machine devices, sensors. But increasingly, we're selling a lot more digital solutions and our cloud-native data software.

If you think about whether it's Plex or Fiix software. So it's our cloud-native MES production operation management software. It's a great offering for a smaller customer who does not want to employ a large IT set, does not want to have the cost of managing the software themselves. And for them to be able to have -- to deploy a piece of software that's modular. It's quick to realize time to value much faster and it's managed by someone else, and it can be updated instantaneously and managed by someone else, that we're seeing great adoption. That's one example.

AMRs is another example in terms of CPG, as Tessa mentioned, autonomous mobile robots and is providing a lot more of that autonomous material movement in an environment where it's not easy to get labor. It's not that easy to hire, train and retain labor and the labor cost is going up. So we're seeing a lot of different ways to play in that market.

And we -- I would just say automating production logistics really started I would say automotive was the first to adopt. And over the first half of this year, we've seen large-scale implementations with CPG customers. So really the diversification of the industries that are moving in this area included CPG over this past first half of the year.

Okay. We haven't discussed AI as much specifically yet. So maybe just to start off, if we could zoom out for the benefit of investors not as familiar with Rockwell and speak to how Rockwell has already incorporated AI into certain products.

Sure. Well, you may be surprised to know, we've been doing machine learning, which correlates with AI for quite some time, really focused around process optimization. And so how do you increase yield and throughput and quality of a manufacturing process really embedded in the control system.

And if you think about AI from a manufacturing and an industrial perspective, I think an easy way to think about it is there's the life cycle of an automation system. So what happens when you're designing an automation system, you're testing and you're deploying it into an industrial environment. When you operate your production assets and when you're maintaining the systems that you have. And so we've actually done quite a bit across that entire life cycle in terms of embedding AI capabilities into the products that we deliver and the software that we deliver to customers and embedding AI and leveraging that to enhance and further differentiate and create value in our products, makes it easier for our customers to adopt.

So on the design side, we were first to market with a cloud-based design software environment. That's allowed us to innovate at a really rapid pace in terms of adding AI capabilities. And so we've added AI agents to enable automation designers to evaluate automation code to develop code using AI to make it much more efficient to design and to test, to simulate and then deploy automation systems into a manufacturing environment.

On the operations side, we've built a number of use cases that are used in the production process to improve how the process is operating. So whether that's process optimization, getting the right combination of temperature, material, flow in order to optimize the process and increase the quality and output, inline quality inspections, so we launched a product called Vision AI, which is quality inspection. AI. There's still a lot of manual effort that goes into evaluating products and their quality, taking samples and so the ability to do that in line and analyze the existing quality and predict the quality of a product is an important use case.

And then on the maintenance side, we've done quite a bit of work around predictive maintenance. So in our fixed CMMS software, we've added an asset risk predictor. So based on the historical failure modes of an asset, we can predict when maintenance needs to occur.

And Guardian AI is an application where taking the internal data from a variable frequency drive. We can monitor the electrical signals and we can indicate whether that there's an issue with a bearing or a motor preventing downtime and alerting a maintenance team that they need to perform maintenance on operation.

So a wide range of capabilities that are already available today in the market, and we're continuing to build out new use cases for customers moving forward.

What would you say the barriers to broader adoption of AI for your customers are? And I mean, do any of these factors increase your moat or they open you up more towards competitive friction at all?

I think the most industrial companies are generally pragmatic, right? And so they want to ensure that there's a good return on investment for them on a project that they might do. And so I think as we prove out these use cases, we're making it easy to understand the to be able to implement these solutions and get the value quickly. And so I think that, that proof in these use cases that we're building, I think, has been really valuable for customers to understand the return opportunity that they have.

And I think, generally, I view AI as an accelerator to automation because it's making the adoption of automation much easier for our customers.

Can you speak to within software, specifically investors are very focused on the defensibility. So could you maybe expand upon your offerings -- Agentic AI offerings across your software stack, where you are in that journey and how defensible it is for you?

Absolutely. I mean, at the end of the day, everything we do, as Tessa mentioned, is tied to the production automation. The way we approach how we work with the customer, it's really across the whole automation life cycle, from designing a system or designing a new plant to putting it in and then producing it for a long time and then eventually -- and maintaining it and eventually once it becomes old and obsolete you upgrade to the next system.

So the way we approach whether it's software, hardware services, we want to make sure that we develop offerings for our customers that are easy to use, easy to deploy and easy to maintain it. And if you look at our software, software was about 10% of our total revenue. And the majority of it is very much tied to these and embedded and type of integrated with all of these stages of the life cycle.

And everything we do is mission-critical, meaning it's important to have -- it's important not to have any latency, security is paramount, this process interacting with operators and people on the plant floor.

The way we look at our software -- specifically to software development organically and inorganically is it needs to have a moat. It needs to accelerate and it needs to help customers get to their outcomes faster. For example, as Tessa mentioned earlier, the design software, our cloud-native design software that we were the first ones to develop. It's now perfect for Agentic AI to help our customers, developers interact with the system, design systems in a matter of hours. It could have taken -- it used to take weeks to deploy a system. You can do that in a matter of hours, a matter of days, much faster customer gets to value. And then they're producing, we're helping them in process optimization with our software. And so we think we are very differentiated.

Our focus on software was different than some of our competitors. Some of our peers are really focused on other areas of the technology stack, on the product design or chip design or computer-aided design, we focus on manufacturing and production environment. And -- we think we've built a very differentiated offering.

We always look at opportunities to accelerate that, whether it's organically or inorganically. And we always look for potential disruptors. But as Tessa mentioned, we see that as an opportunity to really scale and help customers adopt more offers across the global fleet.

SP33039678 And I believe it was high single-digit software ARR growth in 2Q? Just where are you seeing the most traction right now?

Yes. ARR, our annual recurring revenue is about 10% of our total revenue. It's a combination of recurring software and recurring services. Recurring software has been growing high single digits, and it's really driven by our SaaS software. So Plex, manufacturing execution system software and Fiix, our compute and CMMS software. So that's been growing nicely and a combination of really across many industries. We talk about automotive, CPG, life sciences, it's really across the whole suite.

The recurring services piece has been decelerating in the last few quarters, and we talked about really customers grappling with a lot of trade uncertainty and increasing input cost and volatility, they are pushing out some of the important but maybe not as urgent services to the right of it as they reprioritize their spend near term, but we do see continued demand for our services, whether it's cybersecurity services, safety services, remote monitoring and things like that.

And does that services in the guide? Are you assuming that weakness persists? Or do you assume that, that there's any recovery there?

We continue to expect high single-digit growth in ARR for the full year, and we do expect soft -- the recurring software piece to grow faster than services in the near term, yes.

We should spend a minute talking about margins because that's been a clear standout as well. I think ITD and really Rockwell overall, both had really excellent margin expansion in the quarter, incremental margins over 50%.

And Tessa, maybe can you give us a sense in ITD specifically where you've been seeing the most opportunity in productivity and also what would some of the remaining bigger priorities beyond this year be for your segment to continue to drive productivity?

Yes. I would say that operational excellence that's driving margin expansion is really a company-wide focus. And so all three of our business segments as well as all of the functions in our supply chain have been collaborating together to really drive the margin expansion that we've seen.

And we have really taken a holistic approach as we think about productivity and margin expansion in the business in ITD. Clearly, it's a combination of volume, price and productivity. That's driving the margin expansion that we've seen.

I think productivity is an important lever for us. And as a company, we've really been looking into at our operations and where we have the best opportunities to drive productivity. So that's from the products and their designs and how do we design them for.

For cost and manufacturability. How do we negotiate and work with our suppliers to drive productivity within our supply chain. What are the indirect spend that we have in terms of services and materials that support the operations, logistics, how we deliver products to customers and driving productivity there. And we did have -- structurally, we looked at the organization and did take some structural action prior to this year that's having an impact as well.

As we move forward, there's a few areas of focus for us. And really, as an organization, we're focused on a sustainable pipeline of productivity actions and projects that will drive ongoing improvements in terms of productivity. I think some big areas for us this year are around product design changes that will drive alternative designs that can drive cost of the direct materials that we use.

There's ongoing manufacturing efficiency projects, investments in automation and AI in our own manufacturing facilities that are making us more efficient and certainly logistics. We think there's room to grow in terms of driving productivity from a logistics perspective.

In-sourcing is an area that we're focused on, where are there materials, subassemblies that we've traditionally outsourced that we can drive cost and margin improvements by bringing those in-house. And so my expectation, we'll execute projects this year, but we're going to continue to focus on productivity as a driver for margin expansion and expect to maintain a strong pipeline of opportunities from this year and moving forward.

And maybe if you could touch on price costs as well. I think it was positive in the quarter. Can you speak to what you're seeing on items like memory, transportation, raw material pressures and just your confidence in being able to offset those in the back half with price?

Certainly, we are guiding to 250 basis points of price in total for the year, of which 150 basis points come from underlying price and about 100 are expected to come from tariff price. On the input cost inflation side, no doubt, we can all see that the cost of memory chips is escalating. And so we are expecting sequentially to see higher cost on that front.

We don't have as much exposure to raw materials, but we do have some. And so there are some other input costs that also slated to go up. But for us, memory chips is the biggest one. And we feel confident in our ability to mitigate that and offset that cost. We talked about that price and cost and offsetting it might not all align perfectly well in any particular given quarter. But over time, we -- as we've demonstrated in the past, are planning to offset it.

Maybe just in the last remaining minute, if we could touch on capital allocation. You've outlined a $2 billion investment over the next 5 years, 80% is in CapEx, 20% in OpEx. Could you give us maybe a breakdown of what you're investing in and what those investments should enable for you?

Yes. As you said, largely, the investment is CapEx, and it's a combination of investments in our manufacturing capabilities and our talent and in our digital infrastructure. So included in that is investments in automation and AI in our own manufacturing facilities to drive operational improvements and efficiency.

It does include brick-and-mortar in the U.S. with a new greenfield that we announced that's going to be located in Wisconsin. So the largest beneficiary of that investment is really going to be in our U.S. operations. And an area of focus is really around our talent and our digital infrastructure and, ensuring that we're making the right investments to tune the business for the future and the new offerings that we have and to support continued growth of the business as well.

Great. Well, management will host a breakout session following this. It will be in Aster Suite 2. But please join me in thanking the team for being here.

Thank you.

Great. We'll get started. Again, very pleased to welcome Rockwell Automation to the stage, and Christian Rothe, CFO; Matt Fordenwalt, SVP of Lifecycle Services; and Aijana from Investor Relations as well.

So Christian, I thought maybe open it up with just top level -- top-of-mind issues for you and perhaps we can get into Q&A.

Yes, absolutely. We can -- so top-of-mind issues for us, really strong Q2. Frankly, we felt good going into the quarter. I think the quarter itself outperformed what we were expecting and it outperformed really across the board. All of our segments came in quite nicely on the top line. Lifecycle was probably closer to what we had expected on the top line, but actually outperformed our expectations on the bottom line. So the end result was a really strong flow-through profitability, great performance on the EPS side, incremental margins that were really strong for Rockwell and allowed us to have more confidence and so we raised our guide. So the raise of our guide was a full 3 points on the organic sales line. So it went from a midpoint of 4% to a midpoint of 7%, and we took our EPS number up by a full $1 at the midpoint. So feel pretty good about how the first half shaped up. We obviously got a full second half that we have to go get, but I feel like the setup is good.

Great. That's a perfect way to set up. I do want to come back to the trading conditions and the way you're seeing the world. But I thought it would be good to step back and just kind of focus on what you've done and the changes that are underway in the 2 years, more or less 2 years you've been as CFO. I think you came in with a mission to really try and operationalize some of the way that Rockwell goes to market and some of the products, pricing, cost structure. So maybe just talk about what you've accomplished, what needs to be accomplished?

Yes. So I think the thing about Rockwell is that the organization, we started with -- the company has got over 100 years of history. Our technology is arguably the most ubiquitous technology in the industrial manufacturing world in the United States, in particular, really strong loyal customer base, a really good margin profile at its core with our technologies. And so to take that and say, "You know what, we've got the next level that we can do as an organization." And all the different levers that are available to be able to do that, they're really all there for Rockwell. That is we have pricing power, we have a really strong channel that can even do more for us, we have a really good relationship with machine builders and system integrators, but there can be more there.

We're finding areas and applications for our technology that we knew were there, but the market is starting to adopt more in things like data center. Then operational excellence-wise, we have more that we can do in our factories in our own operations to bring more automation and ultimately, autonomy to our operations. And so we're on that journey now, too, and we're seeing that with good expansion on gross margin. At the same time, we just went through -- in 2024, went through a fairly large cost reduction process, which included some headcount reductions. So we were starting at a really solid base from our spend levels. And -- but we feel like we're in a position to hold that in check. So we're getting really good leverage on the P&L. So it really -- it's a lot of different factors that are all coming together. It starts with having an amazing product and really good relationships with customers and then taking that and building off of it to drive really great profitability.

Okay. If you had to think about what are the 1 or 2 single biggest drivers of further improvements, what would those be?

Yes. For me, it's always volume, right? Volume solves everything, right? So to the extent we can get volume, that's the #1 driver. The #2 one for us, I think we've shown over the last couple of years that we're pretty good at the productivity play now, and we're continuing to enhance those activities. So maybe I'll set that one aside and just say that I do think to take our business to the next level, it's about making the right investments that have a long-term ROI to position us for kind of that next stage of not just top line growth, but also next stage of profitability.

Okay. That's great. And when I first picked up Rockwell, eons ago...

I heard 21 years ago, is that right?

21 years ago. Yes.

21 years ago. That's great.

Is it literally a lifetime. Certainly a good career to the full. But I mean, Rockwell is always a first-quartile margin company. And certainly, during sort of the period around COVID and supply chain, a lot of companies really kind of stepped up on margins, and you guys fell back. Maybe just talk about what happens? And does that mean there's a lot more catch-up potential for Rockwell potentially?

Yes. There were a couple of factors that happened during that time frame for -- we did a number of transactions. Those transactions were of a collection of businesses that we really love. They're great. They are new ways for us to win. It gives some real strength to our product offering, our overall offering with our customers and especially in the production environment. But a lot of those businesses were earlier stage than what you would normally want. That is the profitability level was not strong. And so that collection of transactions were somewhat dilutive to our margins. That held our margin in check during that time frame.

On top of that, we also were adding more headcount. We were spending more. We were positioning ourselves for an automation renaissance, if you would, and that didn't materialize. There was a lot of stock up that happened in the channel during that time frame. And of course, the destock hurts. It hurts for everybody when that happens. And so that allowed us to think about the rightsizing of our organization and our spend levels. And so -- yes, we do recognize that there is a -- the margin profile for Rockwell over that kind of decade -- and we've talked about this, that decade time frame, margins were relatively flat, whereas the rest of the industrial world, there was some pretty good expansion. And so we see an opportunity for us to definitely expand those margins over the long term.

Okay. That's great. And then before we get into sort of the guidance increase, et cetera, and cycles and all that good stuff, you did sort of talk about tease out this sort of automation cycle and accelerating growth, et cetera. We do get these bouts of enthusiasm around automation, aging workforce, productivity, et cetera. What's kind of the current setup? How is Rockwell positioned for the next 3, 5 years? Are you expecting 6% to 9% growth, 5% to 8% organic, 1 point from acquisitions? Or do you think it's going to be better than that? I mean how are you positioned right now for that?

Yes. So we have a growth algorithm that we put in place in 2023. It talks about kind of 5% to 8% organic growth with another point added on from acquisitions. And that's made up of everything from what's happening with the general macro environment as well as market share gains, continued growth with ARR. We're signed up for that. And so -- and again, that's a CAGR, multiyear kind of mid-cycle to mid-cycle. We started off a little bit in the hole. So we've got some room to make up there. Q2, Q1 were a good start towards that, but we've got some more space to go there. So as far as what's going to happen over the next 3 to 5 years, I think we'll have to wait and see about it, but we like the momentum we're bringing right now.

Okay. That's great. So you mentioned volumes is the biggest single driver of improved margins and performance. So it does feel like you're starting to see that volume pick up right now. And obviously, the second half of last year, we saw very attractive growth, but much more by easy comps. And now it feels like basically there's some real growth if that's the way to put it. You've got -- you've earned a reputation as a pretty conservative CFO, I think, rightly. To raise guidance by 3 points in one single quarter is quite something. So just maybe talk about what happens? What gave you the confidence that what we're not -- what we're seeing is not a flash in the pan, that this is more durable.

Yes. So our initial guide for the year at that 4% midpoint, that was really taking what we saw in the second half of last year and saying, okay, well, we know we've got some easier comps maybe in the first half, but acknowledging that we weren't fully seeing a really good ramp, and so that's where the 4% came from. We started to see a really nice sequential ramp as we kind of exited Q4 and went into Q1 and then into Q2, and there was pretty good conversion on that. On top of that, that happened with more on the product side of the business, which allows us to convert a lot more quickly.

So some of that had to do with just the performance that we had in the first half gave us -- there was already an amount that we had to build in because we had already outperformed. And then the remainder was saying, look, what we saw in development in Q2 and the very early part in Q3 would say, we feel like there's still another movement up that's happening, and so we did build it in. But I don't take offense to being called conservative, prudent, anything like that. I wear it as a badge of honor.

No, high complement, actually. And obviously, you've got really good visibility on channel inventory sell-in versus sell-through. Not so much on the machine tool builder side, but maybe just talk about that. Are we seeing a restocking cycle here? Or inventory is still quite balanced there?

Yes. I think we feel like things are really balanced right now. That is -- if you go back before the supply chain crisis, so you have to go back to the 2019 time frame and really the 50 years before that, Rockwell hadn't seen a destock/restock cycle before in our business at all. And so we feel like inventory levels in our channel can be relatively stable over a long period of time, and there doesn't have to be a restock. So right now, what we're spending a lot of time on is trying to make sure that there is not a restock happening.

And my team can attest to the fact that I'm fairly belligerent when it comes to if we see something that looks like it's -- there's a stock up that's happening. We want to make sure we're aggressive about it because we don't need to see it. Now that doesn't mean that we don't have project activity that people have to put stock in place to get ready for those projects and stage. That's okay. But yes, so we're looking at those data points as far as overall inventory level, especially price adjusted going back to 2019 levels. We're fine there.

Distributor demand that turns into demand on Rockwell, we want that to be 1:1. We're in that ballpark, too. So we feel good about that. We're -- as you mentioned, the machine builder side is harder, but we do have a lot of interaction with them. We do survey them. It feels like their stocking levels are in a good spot, too. So that is we -- especially compared to where they were in '23, we feel like we're okay there. And so as opposed to maybe some others at this conference that do talk about the restock cycle, we're trying to keep it in check.

That's great. Matt, I do want to come to you in a second, touch on your business. Coming back to the machine tool side. We're seeing really strong order growth for the Japanese machine tool builders where we have really good data. Are we seeing a similar trend for the European machine tool builders?

Yes. We've had growth coming out of the Italy, in particular; Germany was a little bit behind, but I think we're at 5 quarters now having year-over-year growth with those customers. And you're seeing it in our European numbers, for example, were 9% growth organically in Q2 year-over-year. That was up against an easier comp. But at the same time, a lot of that's being driven by what's happening with those machine builders. So yes, it's good to see that. And recognize that it's a sale for us into Europe, but that doesn't necessarily mean that's where the machine is destined.

Right. And that'd be more PLC-centric sales?

There's attachment as well, but...

No, it's our entire offering. So you have -- on machine, you have intelligent devices, you have PLC, you have our Edge software, you've got [indiscernible] Optix, Emulate3D simulation, emulation. So it's really -- it's pretty broad.

Okay. That's great. Thanks, Aijana. Matt, your business is a bit longer cycle, more product-oriented. So maybe talk about what you're seeing from customers in terms of CapEx intentions, product pipelines, et cetera.

Sure. Across most industries we serve, we see a little bit of, obviously, geopolitical instability and some uncertainty associated with trade. So we're seeing capital projects being delayed or broken up a little bit. So the project sizes tend to be a little bit smaller in the short term. I think there's a balancing that's happening that we've seen in the bigger buckets what we call shoring, which would be mega greenfield, natural greenfield, semicon, data center, life science are really starting to percolate. My business doesn't participate directly from a labor standpoint on the data center side or the semicon side. So we're really focused on the food and bev, auto, things of that nature.

So from a capital standpoint, a little constrained, and that's when we talked about at earnings a little bit as we're seeing green shoots across, good product demand, but that capital hasn't been going on a full release cycle. But our funnels are very healthy, project quoting activity is very healthy. It's just a delayed decision-making process that we're faced with.

And what do you think unlocks that uncertainty? I mean it feels like we're in a bit more stability than we were last year, but that's not saying much. Do you think we need more stability here? Or...

Listen, everyone who's an industry leader and a leader eventually has to make a decision about their business. Investment has to unlock at some point because otherwise, competitive pressures, the pursuit of improving yield, improving quality, it's a competitive marketplace. So more stability, I think, in trade. I think some of the geopolitical things need to resolve as well just because people need to understand the cost basis of their projects.

Okay. Your segment is called Lifecycle Services. And we don't normally associate Rockwell with services. So maybe just talk about kind of how the model is evolving in services and what -- how that can play out?

So Lifecycle Services is a full life cycle business, meaning we meet customers where they're at. It could be designing a new plant, a new production line. So we engage them early with consulting resources about how to create an autonomous operation. We can design, build, help them operate and maintain that facility, that line, that machine. So our services are architected for be it our higher-end consulting to engage earlier in the entire cycle, it could be on our project engineering, through our partner network as well to scale out a rollout. But a large part of the business also is on that operate and maintain side, where we are selling service contracts to help our customers be more secure, more resilient and more productive. So if you think about the mixture of projects and contracts, that's really what this business is about, either creating the installed base in the market through the professional services and engineering services or expanding the entire value proposition of why a customer has invested in automation in the first place with our service contracts.

Obviously, growth has been moving up to the right nicely. ARR has been decelerating a little bit here. I think 6% was the number last quarter. Maybe just talk about what's been caused that deceleration and confidence in getting back to that 10% level?

Yes. Overall, ARR was a little bit above 6% last quarter. We're not satisfied with that. Our software offerings were in the high single digits, which was right along where we thought would be. On the service contract side, it was more a little bit around mid-single digits. A couple of factors happen there. OpEx is constrained in the markets. But the real indicator of success for us is we are getting more and more customers under contract. So our customer contract base is expanding. Maybe on a pure dollar standpoint, we've had a little bit of headwind there from some OpEx optimization as, again, customers are faced with input cost challenges, OpEx a little constrained, productivity challenges as they're looking.

But our algorithm hasn't changed. Our goal is to get every contract -- every customer in our installed base under contract. We then work with them to move them to a managed service environment, which allows us to deliver more value to them. It's actually more accretive margin for us or use our digital insights, our AI capabilities to address that cyber, that resiliency, that productivity, which is a lot easier for us to renew. So I'm pretty confident, given the contract base is continuing to expand, that algorithm will kick in and allow us to continue that upward momentum of growth.

Okay. That's great. Any questions from the audience for the team? So put your hand up. No, okay, great. Maybe, Christian, back to you. Rockwell tends not to provide intra-quarter commentary and Aijana give me the BDI here. But I thought I'd give you the opportunity to do any color in terms of what you're seeing right now. And you talk about the sequential ramp through the first half of the year. Anything to say?

Yes. We -- you're right, we don't -- we tend not to give any intra-quarter commentary. And we're only a couple of years -- or a couple of weeks [indiscernible] from our Q2 call. And so as far as the cadence goes, it's no different than what we had talked about on the earnings call.

Just going to check. Then...

Fair enough. I want to see if we're going to break some headlines here.

No, no, no, exactly right. Or break something. On the end markets, I've been quite pleasantly surprised by the continued strength in warehouse and e-commerce. I know there's a bit of data center in the mix as well, but maybe just talk about that specifically and the sustainability of that trends.

Yes. e-com and warehouse automation has been a great market for us. It's been growing strong double digits for many, many quarters now. And it's really -- it's a compilation of different businesses within that, right? And all of them are actually firing on a lot of cylinders. So one part is the e-commerce part. So the e-commerce player and the ecosystem that supports the player, we have really good business there, a combination of some new fulfillment centers and optimization of brownfields. You have also then parcel companies. As you know, they are investing in automation and productivity, a lot of outdated warehouses and sortation facilities, lots of labor cost issues and labor union negotiations. And so there's a lot of drive to automate. And we're nowhere near done. There's a lot of -- the network is outdated and they need to upgrade.

And then you have another set of customers, basically traditional retailers, grocery stores, any company that has warehouses, and they need to automate that, too. And so there's a lot of out there that can be retrofitted, and it's a great business for us. And then finally, we do have a piece of our data center business that falls into that e-com and warehouse automation business, and that's really through our power distribution business through our Cubic acquisition. And so all of them have been growing nicely.

We are -- we did increase our outlook for the full year, guiding to 20% growth now. We think there is durable demand. I mean if you look at the consumer preferences, the need for flexibility, the need for automation and also the labor scarcity part, we think we're in a good position there. Certainly, data center part is a great business for us. We talked about it. It's a combination of our power distribution business but also our controllers, our Logix, PLCs. And with a lot of the need with the AI workloads and the need for a lot more robust, resilient and secure data centers, that's where there's this market shift and customer need shift from commercial controls, DDC to industrial-grade controls. And this is where Logix, our controllers, is a perfect fit. And that's been contributing to our Logix growth as well, including in Q2. And so we get to play opportunistically in this great market with our offerings, and we see that business growing strong double digits.

Okay. That's great. And then we met with your team at MODEX, the warehouse logistics show. And one of the themes, not just from Rockwell, but from other companies was AI tools are actually helping to accelerate investments, lowering ROI -- raising ROIs, lowering time to decision. Is that something you're seeing more broadly across the portfolio?

We do, and we see it through the entire life cycle. Clearly, we talked about, on the design phase, how it improves your productivity. You get to market much faster, you can design a system or line or manufacturing cell much faster with our proprietary GenAI, a lot less coding, much more natural language instruction. That's great. And then you get to the run time, the actual production where the majority of the life cycle of our customers is. You get to produce, you don't want any unplanned downtime. And that's where AI is fantastic for that continues in-process optimization.

And so we have offerings of LogixAI, GuardianAI, VisionAI. So we help our customers use their existing installed base of our offerings, overlay these AI applications and drive outcomes. And so that run time to help them continue to optimize. And then at some point, when they need to migrate, upgrade, how do you do it seamlessly. And of course, we all know that there's this whole change from predictive maintenance to prescriptive maintenance and AI is all over that. So our approach is very practical, very pragmatic. It's at every layer of the tech stack, and we help our customers utilize their existing installed base as much as they can to drive that benefit. At some point, they will need to upgrade to newer offerings to be able to handle more compute power and more security. But we think we're very well positioned, and we're using it internally for our development, software development for our functional capabilities as well.

That's great. Disruption. Let's talk about kind of how the market is evolving, and so you touched on that, Aijana. But there's -- again, as long as I've covered Rockwell, there's always been these concerns of disruption, technology disruption. And now you've got potential AI start-ups. You've got Bezos apparently raising $100 billion to accelerate 4.0 and humanoids roaming around the factory floors, et cetera. I mean, how do you think about how this market evolves the next 5, 10 years?

We take a lot of our competitors very seriously. And we do look at all of the technology and the potential disruptive technology that could be there. And we look at what could enable us, what could disrupt us and where do we need to partner, acquire, develop. So we look at that really decade out. When you look at what's been happening more recently with AI and SaaS-pocalypse or some of the other dislocations, if you understand the system and where Rockwell plays, the majority of our software is very much embedded and tightly integrated with the physical systems, physical mechanical systems that are moving things, that are closing the loop, that are interacting with actual process.

The rest of our software sits in very mission-critical applications where regulated industries, whether you're interacting with people, safety is paramount. You don't have any -- you can't have any latency or any hallucination or anything like that or deviation from the deterministic path. So we have a really good moat. We have hardware, software and services that are greatly integrated. We look at AI and what's happening there as an enabler. We use a lot of foundational models and a lot of areas there, and we actually add our IP to drive our offerings and help our customers.

So we feel good about it. And in fact, when you look at the type of data that's flowing through our controllers, the billions of transactions that go through our MES software, that's the most valuable kind of data because it's going through the Logix. It's actually -- it has the most context. It has the most information that's so valuable for training, and that data is not available for the public domain, right? It's not available for training for others. And so we feel good about where we are, but we don't -- we're not complacent, and we are continuing to innovate. In fact, we are launching more and more offerings, including AI-enabled offerings and the pace of innovation and NPI has only been accelerating.

Okay. That's great. I've got 5 minutes left, so there's 3 more topics I want to touch on. Matt, back to you. The unwinding of the Sensia JV with Schlumberger or SLB, what's called now. How -- number one, how does that reposition your business? And then second, maybe just give us a bit of color in terms of what you're seeing in North American oil and gas right now?

Sure. So April 1, we dissolved the joint venture with SLB, amicable dissolution. We both took the aspects of the contributed businesses back in. So within Rockwell, our process automation expertise, domain experts in oil and gas, primarily upstream, midstream, rejoined my organization. So think about project deployment capabilities across the globe, be it North America, Middle East, Asia, Latin America. So we're really excited to have that project capability back in-house.

We've made advancements in our product portfolio, be it in process safety applications, which this domain expertise and project delivery capability allows us to approach every major producer across the world with modernization of their oil platforms as well as in this current energy-challenging situation, be able to respond to our customers' demands across the globe. So really excited to bring that back in-house. Also, it really aligns well with our broader energy technologies initiatives. So alternative sources of energy, not just oil and gas. This expertise is really great to have and to make -- allow Rockwell to fully serve that market to the best of our capabilities.

And any color on the market environment right now?

Yes. Obviously, the Middle East is one of the more challenging situations. We have considerable resource there. To Rockwell, it's not a material impact. Most of the impact will be seen within my segment, but really assessing damage currently, evaluating opportunities. But even with the Sensia resources coming back inside, we're looking at opportunities across the globe as people have to evaluate their options.

Christian, back to you for the last 2. Capital deployments. We saw a spate of acquisitions around the turn of the decade. There's been more of a bias towards buyback stock recently. How do you think about capital deployment here?

Yes. So we're looking to do transactions again, but we have a very narrow set of criteria that we've put in place around that. Again, we talked about the dilution that we saw from transactions that were completed over the last half decade. And again, great deals, great ways to win, really good offerings, but profitability maybe wasn't quite there. That's one of the criteria that we'd like to tick that box on the next set of transactions as we'd like them to bring profitability with them. And so that's one aspect.

From a focus area, definitely looking for market access. So that is giving us access to the European and Asian markets that we have a lower amount of sales today. Anything that gives us opportunities to add to our portfolio that we can actually push back through our legacy channel is another opportunity. And industrial AI is another area for us. Now all that being said, share buybacks we're not opposed to doing those. It's really more about we want to be in the market every day. And then if there are -- if there's a moment of dislocation, like we saw in Q2, we've got an opportunistic overlay that will step in and pick up more shares. And so happy about taking advantage of that, too.

Great. And then I just wanted to wrap up on November, Rockwell Automation Day...

Yes. Probably one of the few organizations that do an Investor Day every year.

I know. It's great to see. But you're going to be pretty darn close to your margin target, 23.5% -- old money terms, 23.5% segment margin target right now real-time. So I'm guessing 2027 might be little bit ahead of that. So just wondering how you think about that margin target?

Yes. So we definitely -- the margin targets that we put out there are really for our investors, and it's a way to frame discussions like this. The way we think about it internally, absolutely, yes, we want to have kind of medium-, long-term targets, and we do have those today that maybe are, again, get beyond where we are right now. And I mentioned this earlier, we see it, right, we can see the way to get to the prior number of 23.5%. Current -- the way we're measuring it changed a little bit.

We put in corporate and other expense into that equation. So on an apples-to-apples, it's 22% in the new enterprise operating margin metric. But we can see that, and we've got the ability to execute against that today. Now we're focused on that next level of investment in our organization to take us to numbers that are going to be beyond that. And an appropriate time for us to do it, it would be at a year-end. And so let's go execute. Let's see if we can get there this year or get darn close this year. And I'm not saying that we're going to put new targets in place this year or next year, but hopefully, it's right around the corner.

Great. Thanks, Christian. Thanks, Matt. Thanks, Aijana.

Thank you.

Thank you.

Thanks.

Great seeing you. Thanks for having us.

Thank you for 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 Aijana Zellner, Head of Investor Relations and Market Strategy. Ms. Zellner, please go ahead.

Thank you, Julianne. Good morning, and thank you for joining us for Rockwell Automation's Second Quarter Fiscal 2026 Earnings Release Conference Call.

With me today is Blake Moret, our Chairman and CEO; and Christian Rothe, our CFO.

Our results were released earlier this morning and the press release and charts are available on our website. These materials as well as our remarks today will reference non-GAAP measures. Reconciliations of these non-GAAP measures are included in both the press release and charts. A replay of today's webcast and a transcript of our prepared remarks will be available on our website at the conclusion of today's call.

Before we begin, please note that our comments today include forward-looking statements regarding the expected future results of our company. Our actual results may differ materially due to a wide range of risks and uncertainties described in our earnings release and SEC filings.

And with that, I'll hand it over to Blake.

Thanks, Aijana, and good morning, everyone.

Before we turn to our detailed results on Slide 3, I'll make a couple of opening comments. Rockwell delivered especially strong operating performance this quarter with sales, margins and EPS all coming in above our expectations. Double-digit year-over-year growth in orders, sales and earnings reflects our strong market position led by North America and the team's continued focus and execution in a dynamic global environment.

Our technology continues to perform in the most demanding mission-critical environments. Last month, Rockwell supported NASA's Artemis II mission, enabling ground control systems for the first crude mission to the moon in more than 5 decades. It's a powerful example of how customers trust Rockwell when reliability, precision and safety are paramount.

These same capabilities, including our digital engineering, robust security and deep domain expertise are what our customers depend on every day to improve productivity, augment their workforce and modernize operations. We saw an improvement in customer demand across a broader range of industries in Q2, such as e-commerce, warehouse automation, data center, semiconductor and energy. Book-to-bill for the company was slightly higher than our historical average. This includes the increasing contribution from projects to build new capacity in the U.S.

However, persistent trade volatility and geopolitical uncertainty continued to delay large capital investments in other industries, including automotive and consumer packaged goods. We're doing a good job of managing cost increases in areas affected by tariffs, demand for memory and fuel. At the same time, we're accelerating the release of new technology to grow our customer value and share over the long term. The investments we made over the last half dozen years in cloud native software and modern development tools are contributing to this measurably faster pace, including the ability to incorporate AI capabilities within months of their initial release to the market.

Turning to our second quarter results on Slide 3. Q2 sales were above our expectations with organic sales growing 9% year-over-year. Reported sales were up 12% with favorable currency contributing 3 points of growth. Intelligent Devices organic sales were up 9% versus prior year, with strong growth in our Motion, I/O and Safety & Sensing businesses. We continue to build momentum with our production logistics offering where our OTTO AMRs are gaining adoption across a broader range of industries, including automotive, food and beverage, home and personal care and even pilots in data center applications.

A great example of a strategic OTTO win in the quarter was with Subaru of Indiana Automotive, where our autonomous mobile robots are helping scale their production by improving efficiency, flexibility and safety.

In our Software & Control segment, organic sales were up 17% year-over-year and well above our expectations, driven by continued double-digit sales growth of Logix, especially in North America. Our Logix growth was broad-based in the quarter and we saw a particularly strong performance with our data center customers, where we continue to see increasing demand for our industrial grade controllers. A great example of this momentum in Q2 was our win with ATS Automation, who is leading the conversion from commercial controls to our robust Logix PLCs at a new AI data center in Texas.

Lifecycle Services organic sales were down 1% versus prior year. Our longer cycle business was largely in line with expectations with customers deferring some of their larger projects and continuing to prioritize smaller scope productivity and modernization investments. Book-to-bill in this segment was 1.07. The dissolution of our Sensia joint venture is now complete and executed as planned. Christian and I will cover the expected impact on full year fiscal '26 financials later on the call.

Annual recurring revenue was up over 6% in the quarter, including high single-digit growth from software ARR and mid-single-digit growth from recurring services. We continue to see slower growth in our services business with customers temporarily delaying and reprioritizing their spend. One notable ARR win in this quarter was with Prometeon Tyre Group, who selected our cloud native Fix software as their digital maintenance platform, enabling asset management and operational discipline across complex multisite operations worldwide.

From a profitability standpoint, we delivered strong margin performance this quarter. Beginning in Q2, we are now reporting enterprise operating profit and enterprise operating margin, which include corporate expenses. This is due to SEC requirements around non-GAAP measures and is simply a change in presentation with no impact to net income, EPS, cash flow or individual segment margins. Christian will add more detail on this in a few moments.

Enterprise operating margin of 22.5% and adjusted EPS of $3.30 were up significantly year-over-year and well above our expectations, driven by higher volume, positive price/cost, favorable mix and productivity.

Let's move to Slide 4 for Q2 industry highlights. Sales in our Discrete industries grew mid-teens versus prior year, led by better-than-expected growth in automotive, e-comm and warehouse and semiconductor. Within Discrete, automotive had a strong quarter with sales of mid-teens year-over-year. While we are starting to see a broader normalization in production schedules and the release of select larger projects, the majority of customer investment is still focused on productivity and smaller modernization initiatives.

In addition to our Subaru win mentioned earlier, we secured several strategic AMR wins with global brand owners where our autonomous material movement solutions are replacing traditional AGVs and forklifts across their global operations. This quarter, we also had an important new logo win with an energy infrastructure company who chose Rockwell to automate the entire production line for their greenfield facility in China, marking our first end-to-end deployment across a complete battery manufacturing process.

E-commerce and warehouse automation delivered another strong quarter with sales up over 30% year-over-year as customers continue to prioritize upgrades and retrofits within existing warehouses over new greenfield builds. Semiconductor performance improved in Q2 with sales growing high teens versus prior year, supported by a stabilization in core semi demand and an accelerating contribution from AI and data center-driven investment. This is one of the verticals where we saw broadening demand. Our data center business was one of the strongest end markets in the quarter, with sales more than doubling year-over-year. Customers are prioritizing speed to capacity, resilience and energy optimization driving investment in both upgrades to existing facilities and select new builds.

Turning to hybrid. Sales in this segment were up high single digits, led by strong year-over-year growth in food and beverage. Sales in Food & Beverage grew high single digits with good growth in North America and EMEA. We continue to see customer investments in healthier products, including protein, dairy and nonalcoholic drinks. CapEx for new construction remains constrained in consumer packaged goods, including Food & Beverage, but we're seeing the impact of our new offerings such as autonomous mobile robots and contribution from midsized customers that we cover so well along with our distributors.

This quarter, Agropur, a leading dairy producer, selected Rockwell's digital services to support its digital transformation and advance its factory of the future strategy. Our Life Sciences business grew low single digits versus prior year and double digits sequentially with new capacity projects in North America and Asia Pacific. In the quarter, our combination of FactoryTalk PharmaSuite MES, and FactoryTalk Optics helped secure a competitive win for an active pharma ingredient application.

Another strategic life sciences win in the quarter was with Butantan Institute, one of Brazil's largest biopharma and vaccine producers, which expanded its PharmaSuite MES footprint to optimize and automate production processes, reinforcing Rockwell as a long-term digital manufacturing partner.

Turning to Process Industries. Sales in this segment grew mid-single digits with solid growth across energy, metals, pulp and paper, and chemicals. Energy sales were up mid-single digits in the quarter and were above our expectations, particularly in the Americas. A great example of our continued momentum in oil and gas was a win with Petrobras where Rockwell will provide integrated automation services across multiple FPSOs in the Buzios offshore field. This reflects customers' continued trust in our capability to support complex offshore operations at scale.

In mining, we formed a strategic partnership with BHP to support them in advancing the next generation of autonomous operations combining Rockwell's leadership in automation and AI with BHP's deep operational expertise to help enable scalable execution across complex safety critical environments.

Another example of our increased presence in Process this quarter was our new capacity win with a leading North American packaging customer who chose Rockwell to deliver an integrated automation solution for one of the region's largest mill expansion projects, expanding our installed base and positioning Rockwell as a platform for future phases of this multiyear project.

Moving to Slide 5 for our Q2 organic regional sales. We saw broad-based growth across most of our regions this quarter. While the conflict in the Middle East has paused some near-term customer activity, mainly in our Lifecycle Services business, the impact to results is limited today, and we see potential for reinvestment as customers restore operations over time.

Organic sales in the U.S. were up 10% versus prior year and we continue to expect North America to be our strongest region in fiscal '26.

Let's now turn to Slide 6 to review our fiscal 2026 outlook. I'm pleased with our performance in the first half of the year. Customer demand continues to gradually improve and broaden across more of our end markets. However, we are balancing this momentum with a prudent approach in an uncertain environment. We now expect both our reported and organic sales growth to be in the 5% to 9% range. Our reported sales midpoint now assumes 1.5 points of positive contribution from currency translation, offset by the negative sales impact from the Sensia dissolution.

We expect organic annual recurring revenue to grow high single digits this year, led by cloud-native software. We're increasing our enterprise operating margin outlook to 21.5%, up from about 20% in our prior guide, and we now expect our adjusted EPS and to be about $12.80 at the midpoint. The increase is driven by volume and very strong conversion, even as CapEx spending in some verticals remain subdued. We continue to expect free cash flow conversion of 100% in fiscal year '26.

I'll now turn it over to Christian for more detail on our Q2 and financial outlook for fiscal '26. Christian?

Thank you, Blake, and good morning, everyone. Let's go to Slide 7, second quarter key financial information. Second quarter reported sales were up 12% versus prior year. About 3 points of growth came from currency. Our Q2 results still include Sensia as the JV was dissolved on April 1. Three points for organic growth in Q2 came from price, with about half coming from underlying price realization and half from tariff-based pricing.

There were lots of puts and takes from tariffs in the quarter, including the removal of IEPA tariffs, the new Section 122 tariffs and the changed approach with Section 232 tariffs. We continue to expect pricing actions to fully recover tariff costs this year. We'll continue to evaluate and modify our plans as more details become available, especially related to the expected Section 301 tariffs. Maintaining earnings neutrality remains our focus.

Our second quarter and full year guide do not include any impact from expected IEPA refunds or claims resulting from the Supreme Court decision.

Moving on to the rest of the P&L. Gross margins expanded year-over-year by 160 basis points to more than 50%. The strong performance was driven by volume, ongoing benefits from productivity and favorable mix. SG&A spend was 2% higher year-over-year in the second quarter, primarily due to higher compensation, reflecting our annual merit increase and strong outperformance in Q2. Engineering and development spend was up about 11% year-over-year on pace with our sales growth as we continue to invest for the future. Our total innovation spend was about 8% of sales in the quarter.

As Blake mentioned, beginning this quarter, we are now reporting enterprise operating profit and enterprise operating margin, which are both -- which are replacements for total segment operating earnings and total segment operating margin. We are making this change due to SEC requirements, as these new measures include corporate and other expenses and therefore, reflect enterprise level operating performance. There is no change to how we report individual segment operating earnings and segment operating margin for Intelligent Devices, Software and Control and Lifecycle Services. These will continue to be reported on a consistent basis with prior periods.

Slide 15 of our earnings deck shows the recast information for the last 10 quarters, bridging previously reported total segment operating margin to the new enterprise operating margin. This is a change in presentation only and has no impact to reported net income, earnings per share, cash flows or overall financial position.

Our enterprise operating margin expanded 350 basis points year-over-year, reflecting the strong growth in volume, positive price/cost, inclusive of productivity and favorable mix, partially offset by higher compensation. In short, we are getting great leverage on our P&L.

Our adjusted effective tax rate in the quarter was 20.6%, slightly higher than our expectations. We continue to expect an adjusted ETR of 19.5% for the full year. The broad-based strength in our business delivered results that exceeded our expectations with Q2 adjusted EPS of $3.30, up more than 30% year-over-year. Free cash flow in Q2 of $275 million was above our expectations. It was $104 million higher than the prior year, primarily due to higher pretax income driven by our strong Q2 results. Receivables were a use of cash in the quarter, reflecting strong shipments.

Slide 8 provides a sales and margin performance for our -- of our 3 operating segments. Intelligent Devices margin of 20.9% increased by 320 basis points year-over-year and was ahead of our expectations due to positive price cost inclusive of productivity, higher sales volume and favorable mix, partially offset by higher compensation. Resulting segment year-over-year incrementals were in the mid-40s.

Software & Control margin of 34.9% was up 480 basis points versus prior year and was also higher than our expectations, driven by strong sales volume and positive price cost, partially offset by compensation. This segment saw year-over-year incrementals in the high 50s.

Lifecycle Services margin of 14.6% was flat year-over-year, slightly ahead of our expectations. Lifecycle Services had another quarter of good project execution and productivity, offset by higher compensation.

Sequentially, all 3 segments expanded margins from Q1 to Q2 with Intelligent Devices and Software & Control gaining more than 300 basis points each.

For total Rockwell, the incremental margin and the year-over-year sales growth was in the low 50s in Q2, repeating the strong incrementals that we saw last quarter.

Let's move to the next Slide 9, for the adjusted EPS walk from Q2 fiscal 2025 to Q2 fiscal 2026. Year-over-year, core performance had an impact of $0.80 in Q2. Our core performance was driven by volume, price/cost, productivity and mix, partially offset by higher compensation. A quick shout out to the operations team, who leveraged the volume increase to drive great margin performance. A $0.15 currency tailwind was offset by a $0.15 tax headwind. All other items had a neutral impact on adjusted EPS.

Moving on to the next slide, 10, to discuss our guidance for the full year. We are increasing both our reported and organic revenue guidance to a range of 5% to 9% or 7% at the midpoint. That is up 3 points from our prior guidance. This increase reflects the outperformance in the first half of the year and a broadening of the end market strength that Blake discussed in his remarks.

On April 1, after the close of our second quarter, we dissolved our Sensia JV. As we previously mentioned, the dissolution lowers reported revenue, increases Lifecycle and Rockwell margin percentage and is EPS neutral. Our full year guidance now reflects this impact.

Slide 16 of the deck provides an estimate of the sales impact from the now divested businesses for the past 4 quarters. We're providing this pro forma, so you can update your models. The prior midpoint for reported sales guide was $8.8 billion. Our new guide of $8.9 billion reflects about a $200 million increase in our organic sales forecast, partially offset by a $100 million reduction due to the Sensia dissolution. This nets to a $100 million increase in the reported sales guide.

Turning to Slide 11. We are increasing our adjusted EPS guidance range to $12.50 to $13.10. The new midpoint of $12.80 is $1 higher than the midpoint of our prior adjusted EPS guide.

As we move into the second half, we expect inflationary costs to step up, primarily across key components, memory, transportation and general supplier inflation. For instance, memory costs continue to increase in Q2 and are now expected to represent a double-digit million dollar headwind in the back half. We are actively managing these pressures, including through increased safety stock to secure supply and protect operations. We've taken some additional pricing actions to help offset these cost increases, and we now expect 250 basis points of total price for fiscal 2026, with 150 basis points coming from underlying price and 100 basis points from tariff-based price. This is an increase of 50 basis points from our prior outlook, all from underlying price.

The cost inflation and corresponding price realization won't 100% align in any given quarter. Our full year guide reflects sequential margin pressure in the second half. That said, our initial guide for fiscal 2026 expected incremental margin to be about 40% for the year. This new guide puts incrementals above 50% for the full year. For your models, CapEx for fiscal 2026 remains targeted at about 3% of sales.

Now let me share some additional color on our outlook for the third quarter. In Q3, we expect total company reported sales to be roughly flat sequentially with correspondingly flat enterprise operating margin. We are losing about $50 million of sequential sales due to the Sensia dissolution, offset by growth predominantly in the Intelligent Devices segment. Sequential segment margin performance is expected to be up slightly in Intelligent Devices, down in Software & Control and up slightly in Lifecycle as expected post Sensia.

We expect third quarter adjusted EPS to be up about $0.05 sequentially or up mid- to high teens year-over-year.

For the full year, we expect Intelligent Devices reported revenue to grow in the high single digits, with segment operating margin around 20%. For Software & Control, reported revenue should grow in the low double digits, with segment margin in the low 30s, up several hundred basis points year-over-year. For Lifecycle Services, we expect reported revenue to be down about $100 million year-over-year given no second half revenue contribution from the portion of the Sensia business we have now divested with segment operating margin flat to slightly up year-over-year as margin in this segment benefits from the dissolution of Sensia.

A few additional comments on fiscal 2026 guidance for your models. We expect corporate and other expense, which is now part of enterprise operating profit and margin, to be around $110 million. Net interest expense for fiscal 2026 is targeted at about $120 million.

During the quarter, we repurchased 1.2 million shares at a cost of about $450 million. We are now expecting approximately $850 million in repurchases for the year. And we're now assuming average diluted shares outstanding of about 112.1 million shares.

With that, I'll turn it back to Blake for some closing remarks before we start Q&A. Blake?

Thanks, Christian. You may have seen the announcement last week of Clock Tower Farms, a highly automated hydroponic farm, that will start production in our Milwaukee headquarters later this year. Particularly with the developments in software-defined automation, AI and robotics, we are unlocking new applications for our technology that improve the quality of life.

I'm proud of the Rockwell team and our unmatched ecosystem, winning new business, managing costs and delivering impactful solutions, all of that came together in the quarter. We're in a strong position, and we intend to make the most of it.

Aijana will now begin the Q&A session.

Thanks, Blake. We would like to get to as many of you as possible, so please limit yourself to 1 question and a quick follow-up. Julianne, let's take our first question.

[Operator Instructions] Our first question comes from Scott Davis from Melius Research.

Everything seems pretty clear. Look, I guess this data center market, if it's doubling must be getting to somewhat of a material size, I would think. I'm remembering it kind of 1% of sales was doubling that means 2% of sales, you double from there, it's 4%. If you get my point. I'm just -- are you comfortable sizing it for us and helping us understand kind of what that TAM may look like for your products?

Sure. Scott, we're really proud of the progress we're making in data centers. We've talked about it as being low single digits. So a modest amount of base revenue and we don't change the percentage splits of the individual verticals that we show in the slides, except annually. And so we'll take a look at that and see where it lands to determine whether there's more explicit dimensioning of the data center business. But just for review as well, data center for us comes from, I'd say, 3 main places in our offering.

The first would be the power distribution, largely through our Cubic technology that we acquired a few years ago. The second would be the growing trend to replace commercial grade controls with industrial PLCs. Logix has a natural choice for its safety and reliability. And then participating with some of our large HVAC customers. So think about the chiller demand and so on in drives from those customers. So we're proud of the progress, and we'll take a look at the numbers at the end of the year.

Okay. Helpful. And then, look, I think twice in the prepared remarks, you mentioned kind of productivity and modernization projects being the emphasis versus kind of the larger scale stuff. What does that mean as it relates to kind of content intensity and differences? I mean, how meaningful is that change for Rockwell?

Well, I'd say the modernizations, the expansions of existing brownfields, it's the same products that ultimately go into the solutions as when CapEx is being invested. There's probably a little bit heavier involvement in capital projects for Lifecycle Services. So that's part of what's muting the Lifecycle Services growth. But those modernizations, those expansion, lots of Logix, lots of Intelligent Devices and so on in those projects.

Our next question comes from Andy Kaplowitz from Citigroup.

Like, it seems like you raised your forecast for several CapEx-intensive end markets. Semicon, Energy, Chemicals, I think. Is it fair to say that you're seeing some decent unlock in larger projects versus last quarter? Then maybe you can give more color to the drivers and durability of the unlock. Obviously, looks like short cycle has gotten a bit better. We all see the improvement in the USIS 7. But the customer decision-making on large projects just accelerate? And why do you think that is?

So it's -- in certain of the industries that we've been talking about, where CapEx is being invested, we've talked about e-commerce and warehouse automation for a while now, or data center, we added to that semiconductor and energy as well. And so we are seeing enough of a broadening in the capital being invested to make particular note of that. What I should mention, however, is that we're still not seeing a wholesale unlock of capital in some of our biggest end markets, namely automotive and consumer packaged goods, including food and beverage. We had good results in those verticals in the quarter.

But in the case of consumer packaged goods, in particular, it's more a factor of those modernizations that I mentioned, good performance with midsized customers where our channel particularly in North America is so valuable. And then the impact of new offerings, some sizable projects with mobile robots and some of the newer additions to the Rockwell portfolio.

Helpful, Blake. And then like Christian, obviously, operating leverage is helping you. But when we look at your major segments, such as Intelligent Devices and Software & Control, you mentioned positive pricing and productivity is helping. As you've said, you're now focused on averaging 50% incrementals in '26 versus 40%, I think, which was your original guide. So I know you're focused on continuous improvement, but how much is that helping and impacting, for instance, price versus cost? And are we starting to think the core incrementals at Rockwell could be higher than your previous longer-term algorithm?

Yes. Sure, Andy. I appreciate the question. The productivity cadence that Rockwell has been really good over the last couple of years and quite pleased with the progress of the team. And I think you're noticing something that's really great to see, which is it's not just the productivity programs overall in and of themselves, but it's actually a broadening of the thought process of the organization and continue to drive additional ways to win, additional ways to bring through that profitability.

As you know, we're getting some really nice growth on the volume side, and that's flowing through nicely. You mentioned about the incremental margins for 2026 coming in at around 50% in our guide, which is great. Historically, we talk about 35% flow-through. I think when you think about a cycle and how the incrementals work through the cycle for us, we still feel very comfortable with that 35% that we've signed up for. As we move forward and we get to a point where we start talking about other targets for the organization, we do it under the overall umbrella of our growth algorithm. That will be the moment if we were to revisit it, that's what we would do. But again, 35% is a really good flow-through number for us to target for an industrial company. So we're happy with that.

Our next question comes from Julian Mitchell from Barclays.

Just wanted to start with the enterprise operating margin guidance because I think it's pegged at about 22% in the second half of the year and the quarter just delivered was 22.5%. So it's very, very rare for margins in the back half to come down versus fiscal Q2, but that's what the guide is implying. Is this all just this sort of inflation from memory and so forth? Anything else in there, maybe mix is assumed to reverse or something like that? I think mix was a decent tailwind in the first half.

Yes. Maybe I'll start with that one and Blake can jump in. But first of all, to confirm the -- historically, we've talked about a total segment operating margin percentage target for medium term, that's in the 23.5%. Now that we're talking about enterprise operating margin, you're right, the math is about 22% is what that target is. And we are -- we just did a number that's slightly above that. As we talk about and think about the second half of the year, and I said this in my prepared comments, we do have some inflationary pressures that are coming into play, specifically around memory, but also on raw commodities and other supplier inflation.

So we also have some additional spending coming through in the second half. And I think it's just as important to note that Q2 was a really strong outperform. We had a number of things that converged all quite nicely for us, and that's everything from the volume increase that we had sequentially that the factories performed really well on that. The spending level was kept in check. We were able to get really good price realization in the quarter. So it all converged quite nicely. And when you look at the incrementals that we had from Q1 to Q2, that flowed through really well.

So to be able to try to hold on to that and keep that total enterprise operating margin flat sequentially from Q2 to Q3. And then again, when we think about the full year numbers, we will have a little bit of mix shift that happens in the fourth quarter, which is normal for us that will be somewhat detrimental to our margins sequentially from Q3 to Q4. So overall, we feel comfortable with how this rolled together.

Yes, just the only other thing to add to that are that mix shift in the fourth quarter, that's the typical seasonal higher deliveries of Lifecycle Services and engineered lineups that we typically see in the fourth quarter. We're taking a prudent approach to this. The other comment that Christian made about cost is really associated with the accelerated pace of new product introduction that is really across all of our businesses, but especially in Software & Control and Intelligent Devices, we're going to see a lot of new products at automation fair this year and into next year. And so that's what the majority of that spend is associated with.

That's helpful. And then my second question, just on the demand front. I guess, first off, was there any kind of surge in orders in recent weeks? There were some other kind of industrial companies or shorter cycle industrial companies who saw very, very high orders growth in the March quarter, multiples of their organic revenue growth. I just wondered on the extent of the orders increase that you've seen? And any particular color on the Logix platform within that, please?

Sure. Julian, we continue to look very carefully at the buying patterns at our distributors. We look at their inventory levels and we continue to regularly survey our machine builders so that we make sure we understand and can ensure that the demand is natural. And that was the case in the quarter. We did not see any pull forwards or advance orders in the quarter. So we're encouraged by that.

Logix itself grew over 20% in the quarter. We continue to see strong gains in Logix. We're introducing new products. We're seeing conversions in data center. So that business is doing quite well with some very exciting additional introductions planned over the coming year.

Our next question comes from Chris Snyder from Morgan Stanley.

I wanted to follow up on the demand commentary. I think if I heard correct that you said the book-to-bill was above the normal range. So if you could just confirm that and like just maybe confirm what the normal range is, if I heard that correct? And then just, I guess, more broadly, have customer conversations changed? It felt like over the last year, the messaging was that there's a lot of interest in relocating production into the U.S. but companies were just not pulling the trigger yet. Do you think that has flipped, and if so, why?

Sure. So Chris, I'll start with some comments and Christian might add to that. Look, we've talked about a normal corridor for book-to-bill orders over shipments as being between 0.95 and 1.1. In the quarter, it was a little bit above that. For the first half, it was within that corridor, and we expect the full year to be within that corridor. So there was good demand, good conversion in the quarter of orders received, but we just saw orders particularly strong, especially in products in the quarter.

From an overall customer demand standpoint, the sentiment is still positive. There's excitement, I would say, about the focus on manufacturing in America, our home market, and while we have seen the uncertainty around tariffs and geopolitical and some inflation delay capital in a few of the markets I mentioned, like consumer packaged goods and automotive, in these other industries, including a couple that we started talking about this quarter that we haven't talked about in the past, capital is being spent.

And so I'd say the general mood is positive. But undeniably, there is still some uncertainty and volatility in the areas that I mentioned.

Maybe just a quick follow-up on the book-to-bill number that Blake mentioned. So the book-to-bill in that range we talked about the 0.95 to 1.1, for us, that is the range for Q1 to Q3. Q4 for us, it's very common for us to have a book-to-bill that's below 1. We don't call that out typically, just because of the fact that, again, Q4 tends to be a higher shipment quarter for us. So we build up a little bit on the backlog during the course of the year and Q4, it comes back down to a more normalized level.

But again, I can't overemphasize just slightly above that corridor in the second quarter and for the first half inside that corridor.

I appreciate that. If I could follow up on margins, and I understand there's a lot of moving parts with inflation changing quickly and mix. But I wanted to ask about the structural self-help margin opportunity for the company. At the Investor Day, you guys talked about a lot of opportunity. Clearly, a lot of that has been realized if we look at the margin expansion over the last couple of years. And I guess you guys are running ahead of that 23.5% medium-term target already. So I guess, like where are we in the self-help journey? When you guys look into '27 and '28, do you still see more opportunity on that front? Or from here, is it more about driving volumes to get the margins higher?

Yes. Thanks, Chris. For sure, we never shy away from volume. Volume is extremely important. And of course, we want that. But from the productivity in the self-help side, I am -- and we talked about this at Investor Day as well, I think we're quite happy with how things are progressing with the organization and the number of projects we have that are underpinning our productivity program and that productivity program is alive and well. It did not conclude. We are, in fact, adding to it. We have more projects under that today than what we did a year ago and more projects a year ago than what we had 2 years ago.

So we continue to build on that base. Yes, the projects probably have a little bit smaller overall number or average size, but we continue to execute against that. And importantly, as I'm on the road and going out and visiting our facilities and going into our operations, it's really exciting to have the operations team. They want to show all the different productivity projects they're working on. They are being very creative. We're doing everything from starting to build our own automated final assembly stations. There's in-sourcing projects that are happening. I heard a project last week around saving on labels that were costing us less than $0.01 already, and they were able to save a whole bunch of costs on that.

We're streamlining our builds. That's all -- those are all great. And that's exactly what the operations should be doing in a continuous improvement environment, but it's beyond that also. The selling organization, the marketing team, the overall office staff inside the corporate office, yes, AI is enabling a portion of this. but it's also unlocking a lot more around what we can do as an organization. And so yes, we are excited about the future. We do think there's really good productivity opportunities for us for quite some time. The '27 pipeline is being built right now for us to go execute against, and we feel really good about our ability to finish out '26 well too.

Yes, absolutely. And I think additional comment about where are we in this journey? We've had good success, especially the back half of fiscal '24 as we set a new base, '25 and now '26, and we're operationalizing this. So this becomes a part of the total company's operating rhythm as enshrined in the Rockwell operating model. And so additional work to make this just a fundamental part of what we do going forward, that's not relying on individual heroics. It's a part of our processes, I think, is the exciting part of the journey that we're in now.

Our next question comes from Quinn Fredrickson from Baird.

Just wonder if you could unpack a bit more of your expectations around discrete for the back half, just given the really strong start, you're off to in first half and the sequential acceleration you saw this quarter? Full year guide would seem to imply some deceleration in the back half. Is that just a function of comps get tougher or some conservatism embedded around CapEx or any other factors to call out?

So I'll start with -- I can start with some comments about Discrete. For the full year, we're looking at Discrete being up low double digits. We continue to expect automotive for the year to be up mid-single digits. Semiconductor, which we talked about a little bit on this call, up around 10%. And then e-commerce and warehouse automation up around 20%. So Discrete is a good industry end market force. We're seeing growth in hybrid and process as well as we've talked about. But I'd say, Discrete with the e-commerce and warehouse automation, data center, that's strong for us right now.

And the -- just to build off of that, we are still looking at modest sequential growth in Discrete as we go through the remainder of the year. Yes, indeed, the comps get harder as we go through the second half of the year. And that's not just in Discrete that's also in the overall organization.

Sure. Okay. And then specifically within automotive, just wonder if you could unpack a little bit more the strength you did see relative to the fact that CapEx still is weaker. Is that being driven mostly by ARR or just healthy brownfields share gains? Just any color there? And then any visibility on when the CapEx side might start to turn based on your customer discussions?

Sure. In automotive, we've seen the brand owners balance their approach. So internal combustion engines where we have such a large installed base, is still a very important part of their portfolios. They're making investments in hybrid, and there's some in battery electric, but I'd say, hybrid has been a more recent source of focus. We've got that installed base across our hardware portfolio, but also some of the new ways to win that we've added. So Plex with tier suppliers, fixed or maintenance, autonomous mobile robots. Automotive is the single largest vertical for AMRs, and we saw some great wins recently there.

So I think that characterizes it. Now in terms of when we could see an upturn in more wholesale capital spending in automotive, I think the tariffs are a big part of that. Everybody is watching USMCA as those negotiations begin, and it's especially important for the automotive companies.

Our next question comes from Amit Mehrotra from UBS.

I wanted to just double-click on warehouse automation growth. Obviously, that's been very robust. I just wanted to ask a little bit more color. Is that a few large customers restarting spending? Or are you seeing demand broadening out? And then just related to that, could you talk about how margins compare in that vertical versus maybe the company average?

Yes. So I'll talk about 4 main aspects of e-commerce and warehouse automation. First is the data center component. The second is new fulfillment centers with e-commerce. Third is production logistics, which is where companies, in many cases, consumer packaged goods companies are seeing dramatic increases in efficiency by improving the flow of components and material to the production line and then finished goods taken to the loading dock or into the warehouse, and then parcel handling companies as well. So it's fairly broad-based.

There's some different customers and each one of those let's say, subsegments, but they're all robust. And when we look at the profile of what's being provided there, it's really more weighted towards hardware. And it's just the standard products, it's Logix, it's motion control for conveyors and diverters, it's sensors from our industrial components business. So it's products that we've been known for, for a long time in a vertical that's experiencing a very high sustained level of multiyear investment.

Regarding the margin profile, these are -- keep in mind, for Rockwell, our offerings are horizontal. That is, we were able to use the same products and solutions for lots of different applications. The end result is that is a similar margin profile by offering. Now depends on what exactly the -- is being given in the warehouse automation space. So really the difference in profitability in warehouse automation for us has to do the products versus solutions and the mix of those that we see. And that really depends on customer and application. But overall, the margin profile is similar to other offerings.

Got it. Great. And then just as a follow-up, one thing I noticed is obviously more balanced growth between North America, EMEA, AsiaPac. Can you just talk about if you're seeing the international market catch-up? It's primarily been kind of a North American let story, and that's your biggest growth region, but I'm curious if you're seeing EMEA and Asia Pac kind of accelerate as well?

Sure. So as you noted, it's good balanced growth in the quarter. We do expect for the full year that North America will be highest but when we look at what is contributing to the growth in Europe, it's largely the strength of machine builders. We saw high single-digit growth in Germany. We saw a low double-digit growth in Italy, two of the more machine builder intensive countries for us. And that's certainly for machinery that's bound for the U.S. but also other parts of the world because our portfolio is becoming more and more competitive for applications where the U.S. is not part of the mix.

In Asia, we saw growth in China in the quarter, led largely by semiconductor in Taiwan. We've got some very large customers there, and we talked about semiconductor more generally, but that was a particularly strong spot there and then -- and growth in other countries in Asia as well. I would characterize the growth in Asia as systems integrators, engineering firms, users and machine builders. In Europe probably a little bit more concentrated on machine builders.

From a comparable perspective, I just want to point out that Q2 last year Asia Pacific and EMEA were down year-over-year. North America was flat year-over-year. So our comps were a little bit easier in the EMEA and AP regions last year.

Julianne, we will take one more question.

Our next question comes from Andrew Buscaglia from BNP Paribas.

A similar line of question on the end markets and regions. I think intra quarter, you see the geopolitics, heightened energy prices up a lot. And I think there's a lot of concerns around what that means for your process business, both near and long term. Can you talk about how process took out intra quarter? It sounded fine. But what are your thoughts long term in that segment?

Yes. Look, we're excited to bring back the oil and gas-focused process automation business from Sensia into full control under Rockwell. And that business, specifically is about 10% of our total energy if you include other forms of energy is about 15%. And we specifically called that out as you said, a good contributor in the quarter. People are going to be concerned about efficiency. They're taking a very disciplined approach to capital. And particularly where we're most exposed upstream, there's still a lot of opportunity to increase the efficiency of those operations, either in process control, with Logix, power control, with our variable speed drives, digitization, so providing digital twins of those processes to debottleneck.

All the things that we've talked about in other industries are opportunities there. We talked about a nice FPSO win in Brazil in the quarter. LNG, although it's a relatively small part of our total exposure in oil and gas, is obviously doing very well and participating in some compressor trains there. So look, there's a strong correlation between energy abundance and the standard of living around the world, and we expect to be able to continue to participate in that we're all very concerned about the ongoing conflict in the Middle East.

We see that on our business as having paused certain projects. But in general, we don't expect a material impact on our business results for the year.

Yes, okay. That's helpful. And I wanted to check on one other thing within Software & Control. So the second -- second quarter in a row of great results. And that margin of close to 35%, I know you're signaling near-term that's going to be down. But what were the biggest factors driving that performance in Q2? And is that a high water mark we likely don't see for a long time? Or is that kind of where you think that margin can shake out over the medium term?

Yes. So I'll make some comments and then Christian may have some additional thoughts on it. Look, we're very proud of the way Logix is trending. We've talked about a 31% to 34% margin corridor in our midterm targets. We're happy to have performed above that in this quarter. Volume certainly helps. Productivity is helping there. Software, in Software & Control, very profitable Plex business, for instance, certainly helps that. And as we said, ARR for software was up high single digits in the quarter.

So we're proud of that. We're looking to sustain high levels of margin performance in that business, of course, but we indicated some of the factors in the second half of the year.

Yes. And I think we're just -- we want to make sure we're being prudent about how we think about that performance. Blake just highlighted a bunch of things of all converge on what really went well for us in the second quarter. When we think about third quarter and second half overall, though we do have those inflationary impacts that are definitely coming into play. The memory side, it is real. We also have some additional engineering and development spend and other project spend. And importantly, Q2, the disciplined spending was outstanding, and that was great.

But I think, again, to be prudent, we're expecting that there's going to be some spending that comes back in the second half for us. So really strong quarter for Software & Control. Really happy for that -- for all of us in that group. But again, trying to make sure we're balanced as we think about the full year.

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

At this time, you may disconnect. Thank you.

Good morning. My name is Andrew Obin. I'm BofA's U.S. Multi-Industrial Analyst. And our next presenter is the management team from Rockwell. We have Christian Rothe, Senior Vice President and CFO; Matt Fordenwalt, Senior Vice President of Lifecycle Services; and Aijana Zellner, VP, Investor Relations and Market Strategy. And Christian is going to start out with some prepared remarks and slides, and then we're going to go to a fireside chat. Thank you so much for being here.

Thanks, Andrew, and thanks for having us. Good morning, everyone. Let's see if the clicker works for me. All right. So normal safe harbor statement. A couple of quick comments on Rockwell overall. So last year, a little bit over $8 billion in sales. We're headquartered in Milwaukee, Wisconsin in the United States. You can see that we have a pretty good exposure around the globe, but in particular, we are more concentrated in North America. North America is a good spot to be right now because that is where a lot of the volume growth is happening and that is going to be our fastest growing market in 2026 as well.

We have 3 reportable segments. The Lifecycle Services segment, which is represented by Matt Fordenwalt here today, he runs that business for us. Intelligent Devices is our largest segment, $3.7 billion. And our Software & Control segment at $2.4 billion, 26,000 employees for Rockwell around the globe.

In November of 2023, we initiated a long-term growth algorithm as well as some segment margin targets. I'll talk about the segment margin targets in a moment. But this long-term growth algorithm is made up of multiple components. The first is faster secular growth. So think of this as GDP plus because we have exposure to a number of end markets that are growing faster than that. And so we have a really strong exposure to those markets. I'll hit that on the next slide.

The next part, and that we look at 3% to 5% for that share growth and expanded markets. That is we're looking to, of course, gain share but we also have more ways to win, and we've done that via acquisition over the last several years. And then ARR, annual recurring revenue. It's about 10% of our business today, growing at a faster clip than the overall business. This year, our guide is for high single-digit growth for ARR. So we expect that, that is going to add 1 point of growth to our overall growth algorithm, that 5% to 8% organic.

Now our guide for this year, the midpoint of the guide is 4%. The range that we have in place for the guide is 2% to 6%. We initiated that at the end of our fourth quarter. And we just recently -- or 1.5 months ago, we reported our first quarter. We typically do not update our guide after the end of the first quarter just because, obviously, it's 1 quarter in. There are lots of unknowns. But know that with that range, that 2% to 6% range that is in our guide, of course, that we -- at the high end of that, if things develop nicely, and we did have a really good first quarter, double-digit top line growth. But if we get to that 6%, of course, that takes us into that range for our long-term growth algorithm.

And then on top of that, we have acquisitions. We've been on pause on acquisitions for the last couple of years as we digest transactions that we've done in the past before that. That has come together really nicely for us. We are now starting to build the pipeline on M&A.

On the faster secular growth, that 3% to 5%, I mentioned this earlier. But this is a new slide for us that we brought out at our Investor Day last November. And so it shows kind of Rockwell's share. Of course, these are all management estimates and then what we think the CAGR is going to be for these markets that we serve over the next 5 years. So you can see that we have really good exposure to a lot of different market segments, which is outstanding, areas where we have really strong market share and a really good historical base, things like consumer packaged goods. Those are a little bit slower growing, but they're a lot more predictable as well. And other areas that are a lot faster growing, we have opportunities to continue to gain share.

And then from a margin expansion perspective, we, again, we put these in place in November of 2023, and we've been working towards that goal. We expanded our operating margins overall for the company by 110 basis points last year. Our expectation is we're going to be able to do that again in that ballpark again this year, and that's what's in our guide.

Lifecycle Services, which Matt runs is actually already inside the corridor that we put for a target, that 13% to 15%. Software & Control has touched it during certain quarters in the recent past. But it's not -- it hasn't put together a full year yet, but getting closer. And then Intelligent Devices, that 22% to 24%, that's the one that's farthest away. We've got opportunities to continue to go after with things like operational excellence programs. Overall, for the company, that target is 23.5% for the total company. This year, our guide is at 21.5%. So we're a couple of points away from that target number right now.

And part of what we're doing right now is also we're thinking about the future and going beyond that 23.5%. And we're doing that by making investments today that is going to have a yield for us over the long term. And so part of those investments that we're making is we're transitioning as an organization from what historically has been an asset-light organization to have a little bit more asset intensity, investing in ourselves, doing a lot more things for ourselves. So this is capital, it's digital transformation for our organization, it's investment in talent as well. We announced -- last year, we announced a $2 billion investment cycle for us over the next 5 years. So it's a really exciting time to be at Rockwell.

So with that, we can start the chat.

Thanks so much. So look, I think if you -- if we take a look at the materials from your Analyst Day last fall and what you've been presenting, Rockwell is clearly executing on a broad transformative operational agenda. But strategically, when you go to the Board, what are the couple of top priorities for this management team, right? Like as you go down the list because as I said, if you dig in, it's a very broad and deep list. But what's at the very top?

Yes. I mean at the very top, obviously, as an organization, we want growth. Top line growth is really important for us. So it is about trying to make sure that we have a really strong new product development pipeline that we're continuing to invest in the markets that we want to go after. I obviously hit on a few of those there. And so we want to make sure that we are driving that top line as well as getting profitable growth. That is we're also driving the bottom line. We're doing it through operational excellence.

So we do -- when we're talking to the Board, when we're having discussions even as a management team, a lot of those discussions are focused on how we're going to continue to use that Rockwell operating model, which is taking that faster growth and combining with operational excellence in order to get margin expansion. So it's -- you put those all together, and that's really -- that's where the emphasis is as a leadership team and also with the Board.

No, I would agree, profitable growth is the #1 objective. I think product development cycles are speeding up for us and the investment in the business in terms of driving productivity, doing things more efficiently, the combination of that expanded portfolio, the market exposure we have and doing things internally better will drive that.

And maybe as clearly faster secular growth is #1 on your list as well. Can we just -- can you give us an update on macro? What are you seeing? I think as we sort of dig into your model, your outlook doesn't really have much second half acceleration built in. How do you feel about that?

That's a conservative outlook.

You want to start on the macro, Aijana? And then if I can jump in on the second half.

Sure. I mean we talked about, there is certainly some good indicators out there in terms of ISM, what we are hearing from our customers, our engagements with them. I mean Christian just spent some time with our Italian customers a few weeks ago. Matt just actually flew in from France, meeting with some of our global end users, a lot of activity with our customers. So that's positive, definitely.

We continue to look at unemployment, and it has continued to stay relatively low, but we follow that as well. But there are a lot of different things that inform our forecast and our outlook. The biggest one is really our close engagement with our customers and the orders they put in on us. And as we mentioned on our Q1 earnings call, we did see some great orders and some great wins, some greenfields, a lot of brownfield, a lot of productivity. But we're not seeing -- at the time, we didn't see that broad-based kind of uptake.

But overall, from a macro standpoint, uncertainty is still there. And we talked about the need for more stability on the trade front, on the geopolitical front so that these customers across many industries can actually start with those capital outlays.

And with regard to the second half, yes, as I said, we started out the year really well in the first quarter, double-digit top line growth, and that's against our guide that the midpoint is at 4%. Since we didn't and did not -- so traditionally, we don't update the guide, that outperformed in the first quarter, makes it look like that the second half is going to be a little bit more muted. Let's see, right? Let's see how it all develops, and we will be doing an update to our guide after the end of the second quarter. So it's a -- it was a good way to start the year.

Importantly, Andrew, it's not a deceleration in terms of sequentially. Nothing is getting worse, right? We expect moderate sequential improvement as the year progresses. But from a year-over-year standpoint, certainly, if we look at the math, the first half looks like it's a higher year-over-year growth from the second one.

So a strong start to the year model is what it is, stay tuned.

Yes.

Maybe just jumping around a little bit. Clearly, recently, AI and software has been at the top of the investor minds. Maybe I think when we talk to people about Rockwell, there seems to be a bit of confusion as to what it is you do and what your software capabilities really are. Can you just maybe spend some time talking about both your OT and IT software capabilities, where within the factory automation control pyramid you are? And then when I look at what's happening, I actually see opportunities. And what opportunities does agentic AI create for Rockwell given your dominant position in the machine control layer? Maybe that's where we can start.

Sure. I'll start. So when you think about Rockwell's technologies, we're really at Level 2 and Level 3. So our ability to design and operate machine control, the control system within the plant floor, the majority of our software is intimately connected to our hardware and the firmware that runs the machines in the plant.

But the hardware would be Level 1, Level 2, right?

Level 1, Level 2, mostly Level 2. So it is part and parcel of creating value for where we are applying AI is how you design the system, how you actually maintain the system. But in terms of the actual value creation, we're talking really at that machine level, how it's integrated.

So for us, we see AI as a tremendous opportunity to continue to build intelligent machines that sense, that perceive, that act. So for us, at that level where the action is really happening, it's truly a differentiator compared to, I'll say, cloud-based AI. Now, we do have MES. But really straddles between Level 3 and Level 4. But our MES tends to be tightly integrated with the control on the floor using data from the plant floor itself. So when I think about our software portfolio and I think about sort of the hype in the market today, I think it's a huge opportunity for us to continue to elevate our portfolio as well as create more value for our customers.

If you look at what we do, just to add to that, we look at our customers in the production environment, and we help them across the entire life cycle. From designing the system, designing the whole plant, how the production is going to run to really production. That's the biggest part of their life cycle. And so running something without any unplanned downtime with a lot more AI-enabled process optimization, better quality, better throughput.

And so this is what agentic AI is, and you're closing the loop, you're looking at, as Matt said, there is something that's sensing, we're making a decision. And it's the most valuable data that's flowing through our controllers, valuable data that's flowing through our MES. And so when you hear about some of that potential threat, this data is not available in the public domain, the most valuable data that's flowing through our hardware and through our software, the billions of transactions, this is proprietary. And we are using the data to continue to train our models and our agents throughout that.

And so we absolutely view it as an enabler all the way from designing something and using natural language instructions and helping our customers get to production faster, right, accelerating time to market. We help them during the production phase across many different levels. We do have, of course, our intelligent devices, our autonomous mobile robots, we have sensors, of course, our PLC and then software throughout. And so -- and then of course, Matt's business, services is helping customers all the way from consulting and using AI to help them figure out the best use cases, what's the biggest bang for their buck, what's the best ROI, all the way through the process to upgrade, how do you do it seamlessly, how do you do it in prescriptive way.

And Matt, maybe what other ARR trends and if you can sort of break it down because, right, there is software ARR and then there's services ARR. You don't really disclose the difference between them. Can you just talk about maybe between the 2 because there is concern about slowing software ARR. What are you seeing there?

Our ARR is very balanced. So it's not materially different between software and service. Specifically on services, our services are to support our customers. So my project side of my business, our ecosystem or SIs create a large vast installed base. And with the labor shortage or skilled labor shortage out there, many customers do not have the talent and skills in-house to continuously maintain and get -- and optimize their investment in automation. So we have tens of thousands of contracts with customers across the globe where we are applying domain expertise remotely or through our AI investments to ensure that those systems are supported and they're optimized across the entire tech stack that we sell.

So those contracts are highly valuable in terms of recurring revenue, the profitability is also very attractive. But most importantly, it's really about how we meet our customers where they're at, how we ensure that they're getting the most out of their automation investment, and we're taking them to the next level of performance through those contracts.

From a growth standpoint, you're right. I mean the last few quarters, we did see a slightly slower growth rate in ARR broadly, especially in services and the digital services part. We talked about in this kind CapEx environment that with a lot of delays, customers are being more watchful and they are deferring, delaying some of the services that are viewed more discretionary, meaning they're important services, but they're not urgent, right? And so we did see some of that.

Now software ARR actually is growing above the overall ARR growth rate of high single-digit growth. But we do think it's temporary, but it's very much aligned with what we've seen broadly.

And Matt, as long as we sort of -- as long as we sort of talk about Lifecycle Services, maybe we can pivot. If we look at the slide, your business has a nice green checkmark next to margins. It has been a great margin story. Given sort of Christian's drive for margins, what are you...

You noticed that?

Just a little bit. So what are you doing differently? And how much runway do you have, right? Because you've clearly been ahead of everybody else in terms of margins. What has driven the improvement? And as I said, how much run rate do you have?

And maybe as part of the answer, Matt, you can give a little bit more context, even going backwards to kind of where we started.

Sure. So we've successfully doubled the margins in my segment over the last several years.

Well, that's what the company is doing, right?

That's what the company is going to do.

You're the best. It's great being up here with you.

So specifically on Lifecycle Services, I think we are a little bit ahead of the rest of the company in terms of our focus on productivity and efficiency. So we've embraced technology. So a large part of our productivity has been driven by modernizing our systems, our business processes and enabling our workforce to do things more efficiently. So that's one part of that story. We've also focused on our joint venture, Sensia, and improving the profit margin there. Now we have announced that we will be dissolving Sensia, which will be somewhat accretive to my segment's margins and the company's margins.

And last, we've also focused on our labor pyramid, the levels and skills that we have across the globe, and we are truly a global organization in terms of how we deliver projects and services to our customers. So we've really done a nice job, I think, of combating rising wage as well as rising material costs in the environment. So we're pricing much more efficiently, much more effectively. And I think what I'm most proud of is our ability to execute. We have done an extremely diligent job in mitigating technical or commercial risk. And, at the same time, delighting our customers to create installed base for Rockwell. So it's been a great story, and I look forward to seeing what the future will hold, which I think will be a lot more driven by the technology advancement that I have in my segment and become more and more focused on how we deliver a global scale across our capability centers that we've really invested in over the last several years.

And just talking about margin and just sort of going back to the corporate. How much of what happened in the Lifecycle Services are applicable to the rest of the company? Particularly Christian, when we talk, you really have this laser focus on that pricing for the company. How much of what has happened in this segment can be sort of expanded to broader Rockwell?

Yes, I think there's definitely some great learnings. And Matt has built maybe one of the items that you kind of talked about, but I'll hit on a little bit more. Matt has built a really good team that is laser focused, not on the pricing side of it, but also trying to make sure that they really understand the entire scope of the project, the time lines of the project and how exactly we're going to execute it. And doing that well in advance even before they get to a quotation on those projects.

So they've kind of done it from a very holistic perspective, but they do it with a level of detail that is really important for that business. And so we may have had some of your folks go into the other parts of our business. So we're definitely taking some of that knowledge, and we're certainly transferring it elsewhere.

The pricing side of it for Rockwell, yes, we have a renewed energy around pricing, pricing discipline and price realization was strong last year. It's going to come down slightly this year, but again, still really good opportunities to get price for us as an organization. And I think when you take that and you combine it with what we're doing on operational excellence, and I'm sure we'll talk about that more here in a moment. But when you combine getting price realization with operational excellence, that's where you get really strong margin expansion.

Yes. No, in all seriousness. Clearly, you have stated margin targets. But just talking about long-term margin opportunity for Rockwell. What are the biggest levers that you have operationally going forward? In the context here, you have achieved $110 million in savings in fiscal '24, $325 million in '25. You do have a comprehensive list of initiatives driving the margins. What have been the biggest drivers so far, i.e., what are couple of KPIs that have had a disproportionate impact and what's going to drive margins over the next 12 to 24 months?

Yes. So any time you start down the road on a larger productivity program like the one that Rockwell has been going down, you have to have kind of short-term, medium-term and long-term objectives because the longer-term ones, they take time to execute, right? And so you need to have the ability to be able to get good yield, good savings and productivity in the early days, while also working on the things that are going to take longer to give that yield to it.

And so the way we phase this program, we definitely had that, good, bad or otherwise, I mean, the early part of our savings and obviously, the larger part of the savings early for us was in head count reduction. So we went from 30,000 heads as an organization down to the 26,000 neighborhood, right? So there's real savings there. Then at the same time we were doing that, we were also doing a lot more around productivity. So that was, again, multilayered. Direct material negotiation and getting savings from our suppliers, that can happen really fast, and it did happen really fast for us.

When you're going further down in things like in-sourcing and doing more things for ourselves. Well, that takes time to put it in place where you have to buy machinery, you have to buy -- you have to do some training. You have things -- put things in place. Sometimes you have to deplete the inventory of what you're buying from suppliers. So those are longer-term objectives. And so we're staging that such that we're going to continue to get a yield well into the future. That program, more than $400 million over an 18-month window, and that's structural cost savings. Those costs are now coming back into the organization. We're not done.

So it did transition. It transitioned from what we call a -- what we were calling cost savings and margin expansion to now it's just productivity and it's actually built into our overall Rockwell operating model. So we're not spiking it out anymore. For sure, from an investor perspective, I understand that there was -- they like the visibility around what we're getting on yield on that every quarter. At the same time, I think we all can agree that organizations that constantly have a target around productivity every quarter that they're talking about. I'm sure in this conference or other discussions, you'd be saying, "Geez, it seems like Rockwell is always restructuring. They're always -- you always have these cost out things you're doing, what's going on there?" And the reality is continuous improvement, right? We want it to be part of our culture, part of everything, what we do every day.

And so the result of that is that we're not going to be giving that level of visibility anymore, but know that it's definitely happening. We had really good yield in the first quarter. We're tracking very nicely for the second quarter, and we got a great plan for the second half of this year. And right now, we're building the funnel for 2027.

But generally, if and when volumes accelerate, you should have nice operating leverage given what you're doing?

We should. Yes, it will flow through nicely. And especially with our business, we've got -- gross margins are good for us. So we do have the ability to get some nice leverage when the volume starts flowing.

And the other thing, as you sort of -- what's interesting, you sort of talked about and you have these 2 metrics you're highlighting, cost to produce and ROI investment model. Can you expand on that? Because that's something new, a couple of years in. Can you just -- why these metrics and what does it mean operationally?

Yes. So this is -- again, we have a really strong culture at Rockwell. And so we want to continue to build off of that culture. One of the things that as we transition from a more asset-light organization to a more asset intensity organization, we had to give the right tools to the team so that they knew that there were bigger changes that were happening. So you can't go to more asset intensity and more investment in ourselves without really giving a really strong model for us to use across the organization. So that's how we developed a new ROI model, not to say that we weren't doing ROI models before. We were, but it was different. So Matt's business had ROI models. They were using, which was different than other segments, which was different than what was happening in our manufacturing side of our business. We now have the exact same model that's being used throughout the organization, which allows all of us to be in a position to be able to compare the returns on each of these investments.

Now that's one aspect of it. And then you brought up the cost to produce. The cost to produce is we are a manufacturer. We have cost accounting like all manufacturers do, but cost accounting doesn't actually fully bring in all the cost that it takes to manufacture the product. That's really what we're doing is we're bringing in a much more holistic measure on everything it cost for us to produce that product. So think of it like cost accounting plus plus.

And the most important part is that we wanted to put it in a rightsized way so that organizationally, our manufacturing team can -- the objective is, is that year-over-year, if we're making the exact same things as last year in the exact same quantities, we should be able to make it at the same cost or less. And so we had to have a model in place in order to actually be able to do that comparison. So we have it in place now broadly by each factory. The next objective is to continue to take it down further and further into the organization so you can do it at the cellular level and then down to product families. I don't know if we're going to be able to get to SKUs, but that will be the holy grail if we can get there.

You've clearly alluded sort of reinvesting in your manufacturing. So how is your manufacturing footprint evolving with more focused on production capabilities and high CapEx spending, right? You have new greenfield facility, you're sort of highlighting what's happening in Twinsburg and Singapore. And you do have this $2 billion investment framework that you've highlighted on the slide. Can you just bring it together for us?

Yes, absolutely. So this is -- again, what we do as an organization is automation. And we have the capability and the opportunity to actually bring a lot more automation into our own operations. It started in Singapore. Singapore was -- it's one of our locations that has a narrower SKU profile. I think compared to a lot of other companies, it still has a lot of SKUs. And so we're continuing to work on that. But it has a narrower SKU profile, which allows them to have more volume in each of those SKUs. The result is that, that's some of the easiest areas to at least go after automation first.

So we did that in Singapore first. Think of that as a pilot. We took those learnings. We're now doing that in our Twinsburg, Ohio facility. And so we're starting to scale that up. Twinsburg is a much larger facility, has a lot more breadth of SKUs, and continue to learn from that. That will inform and continues to inform us as we think about our next opportunity, which is a greenfield facility that we announced in New Berlin, Wisconsin. That's going to be about a 1 million square foot facility that is going to be purpose-built for Rockwell and it is going to be purpose-built, not thinking automation only, but actually autonomy. We are trying to take our operations in Singapore, Twinsburg and then in New Berlin all the way to autonomous operations.

Now are we going to be able to fully get there? That'd be great, but it's a journey for us. And some of the parts that I'm most excited about, I'm excited about, obviously, what it can do for us for the P&L and what it does for us for our employees. But I'm also really excited about what it does for us with our customers, taking our customers along on that journey and being able to show them that in higher cost locations. I didn't -- Singapore, Ohio, Wisconsin, these are not low-cost locations. And so that allows us to show folks that you can have world-class manufacturing in a higher cost and higher labor cost location and be able to do it efficiently and get a great margin for the organization.

And what's pricing like today? What's the pricing environment? How do you think about inflation?

So we have an annual price increase that's going through next month, and that is a little bit later than what we did last year. So we had actually pulled forward our pricing last year. It was done in February of 2025. We're doing it in April of 2026. And then our normal cadence before all this was actually in June. We'll probably get back to that cadence. So we're going to go through a couple of month trough here without any price change, but it will be fine, we're good because we have the ability to get good price realization.

So we do have the ability to get price. We've been obviously getting tariff-based price ever since the tariff environment came into play. There are inflationary costs that are coming in that's built into our price change that we've got for April.

Excellent. And maybe just shifting a little bit to end market and growth vectors. Can we talk about your exposure to life sciences. I think it was one of the bubbles you sort of highlighted. What do you do there? What are you seeing in the market, lots to talk about potential reshoring in the U.S. We actually estimate it can be as big or bigger than semis, and you do have a lot more exposure on life sciences than you do in semis. What are you seeing just maybe even beyond GLP-1? You have some very large customers in the U.S. Maybe you can talk about that.

Yes. Life sciences is one of the growth verticals for us longer term, and we are well positioned there on many fronts. And actually, it's the one end market where we have the most concentration of software and services.

If you look at where we play, it's really across the value chain. So you mentioned GLP-1 and beyond that, GLP-1 is a great growth driver for us right now with our customers. So you have the end users, you have the SIs, the contract manufacturers that support them that's trying and helping build out that and accelerate time to market to have that supply. We're working with med devices also that are very tightly coupled with that.

We also support other parts, other growth factors. For example, CGT, cell and gene therapy, ATMP, a lot more personalized medicine, personalized therapies, which is really necessitating a lot more flexible, much more modular kind of manufacturing, which is perfect for our technology, including our Logix, our control platform.

Our software, whether it's digital engineering, digital twin, MES, Manufacturing Execution Systems, quality, regulatory compliance. I mean that is what we excel at. And so digital is a big part of what we offer. Cybersecurity is key. It's an important part of every conversation with our customers. And we're working really with the global companies. It's a global pursuit. Now in Q1 for us, we did see some delays that were just more transitory on some projects, but we do -- we are very bullish on life sciences.

So those delays should get there in Q2, those come back?

Correct. We have not changed our guidance.

And maybe just jumping into e-commerce and warehouse automation. Those are relatively small but a big driver for your discrete business, right, I think, up 60% in the first quarter. Can you just tell us what's going on here? What products do we have here? And why is it up 60%?

Sure. I mean some of it is comps. We are guiding to 10% for the full year. So it's a great growth rate above company average.

The guide in the data center business is 10%, too. But yes.

Data center is a piece of that end market. And so we have e-commerce and warehouse automation, and then there's a portion of our data center business that also is in that bucket. And we're seeing growth across different types of customer segments. Clearly, the e-commerce players, and there is continued investment in automating those fulfillment centers, it's continuing. You see traditional retailers who have a lot of older warehouses that need to be updated, labor shortage and labor cost. It's a big impediment, it's a big challenge for our customers. And so they're looking at more autonomous ways to manage their facilities.

Parcel companies, we had some of them at our Investor Day. They're reimagining the network of their sorting facilities. So again, what they're using is our software, Emulate3D, digital twin. They're using our core automation, our largest controllers, our drives, our HMIs. So it's really the full...

So it's basically, effectively, it's the comeback of fulfillment centers for e-commerce, which was on pause post-COVID and data center control center?

Data center as well as -- so what we see, the portion of our data center business that resides there is really that Cubic, our power distribution, think of module and motor control centers that help with that faster data center build out.

We do think that a durable broader overall growth drivers is really just fulfillment. The flexibility, consumer needs for that, a lot more of that investment and scale to it.

And speaking about sort of warehouses. Can you just talk about progress on Clearpath and OTTO Motors acquisition, what are the key KPIs that you're focusing on?

Yes. So the Clearpath business has grown nicely. It's been a double-digit grower ever since we bought it. Our expectation is it's going to grow double digits again this year. Clearly, for us, from a KPI, that top line growth is really important. We're expecting that it's going to stick in that double digits for quite some time. We do think it's a really nice spot to be in.

Another key KPI for us is also profitability. So this business, we were always -- from the day we acquired it, we knew that it was going to be a loss maker as we were focusing on growth and integrating it in our business until 2026. We're still planning on -- so we're staying in the same plan as we always had, which is that we're going to turn to profitability in the second half of this year.

But the growth has been in line with your plan?

Yes.

Okay. And maybe just sort of going back rather on the same thing on the control systems. I think battery, EV battery, that was a big focus. And then EVs didn't happen. But then what is happening is a lot of battery energy storage system. And I think when we're at PACK Expo like 6 months ago, the message was, "Hey, this EV battery business is holding up way better than we would have thought because there is this path to battery energy storage systems behind the meter." You talked about having control systems there. You benefit from, A, you have control system, I think, for the BESS and then you benefit from actually making the batteries. Can we talk about that? How big is that for you? What are you seeing? Are we back from the growth path there? Just expand there.

Sure. First of all, there's still investment in EV. Now it's not happening at the same clip that, of course, that it used to, but there's still investments. So we talked about Hyundai, Rivian and Lucid. What we're seeing with automotive with our brand owners is really investment in multi-energy powertrain, traditional ICE, hybrid and EV. Battery in terms of BESS, it's not really kind of a stand-alone project request that's coming in from our automotive customers, it's really more part of the broader story of energy management overall. And that's what we do in terms of what our software provides, our hardware, our solutions. It's integrated energy management, right?

And so it's making sure that whether it's from the grid, it's on-site generation with other sources and making sure that there is a plant level of resilience and sustainability. And so for us, it's an additional driver. It's the same set of technologies. We don't need something additional to be able to serve that. So it's part of our overall proposition story. But right now, with what our customers are looking for is really more of a broader level.

But is it fair to say that there has been this handoff in the industry from the EV story to behind the meter energy storage system or it's just not enough?

It's some of that, but it's a lot less focused on just a standalone utility of storage and it's more how can you have a broader energy management and managing your cost volatility.

Excellent. We're right on time. Thanks so much. It's been great.

All right. Thank you. Thank you for having us.

Thank you.

Thank you.

All right. We're moving right along here with Christian and Aijana from Rockwell. Thanks for joining us.

Thanks for having us. Yes, morning.

Absolutely. Maybe you just want to kick off with a few comments on -- I think your CEO was down at competitor conferences, made a comment about organic growth potentially this year being within the long-term range of 5% to 8% your guide is 2% to 6% or whatever it is right now. So maybe clarify whatever need to do on those comments and also we'll get into bid in orders, and we'll go from there.

Sure. Absolutely. So thanks for having us. I appreciate this. It's a good conference. Good to be in D.C. This is actually the first time for me doing an investor conference in D.C. So this is a good venue. So -- yes, we started off the year well for Rockwell. So we're -- we completed our first quarter at the end of the last calendar year. And our top line growth, double digits, really strong profitability.

So we beat our own expectations from both the top line and the bottom line. So it was a really good start to the year. At the same time, as an organization, we typically do not change our guide after the first quarter. We did have an interesting benefit. It was a onetime benefit that we had from a perspective that helped us to the tune of about $0.10 in the first quarter. So we did update our guide, reflecting just that one change.

So the midpoint of our guide went up by $0.10 from the initial guide at the end of Q4 to the end of Q1 guide that we gave. Now that being said, we did have an outperform on the top line. I think Blake was responding to a question. I wasn't actually at the conference, so I have plausible deniability here. But I think Blake was responding to a question around the fact that, well, you guys started off a little bit higher than what you had expected.

The midpoint of your guide on the organic side is 4%, 5% if you include FX. And the question was around, do you see a scenario where you could get into that kind of more longer-term range, which for us, the organic growth range that we talk about, the CAGR mid-cycle to mid-cycle is a 5% to 8% organic. And so -- yes, potentially because that is, of course, covered within the band because the band on our guide for the full year was and continues to be 2% to 6% with 4% at the midpoint. So yes, if we edge higher, then it could take us into that 5% to 8% range.

Yes. And I'll just add that customer conversations are positive. Customer quoting consistent to be very strong, continues to be strong. ISM indicators are constructive. On the flip side, you continue to see trade uncertainty and heightened geopolitical volatility. And so there are puts and takes. But in general, we feel good about our ability to win. And once we see that broad-based order intake across a much broader set of end markets for us, that's what we'll be able to increase our guidance.

And when you think about the drivers and ISM, what end markets are you guys watching that could be swing factors on this front? And we're asking everybody, obviously, any early thoughts on what's happening globally? And how that's impacting sentiment or sales near term? There are some companies with a higher sales in Middle East.

Sure. I can start. I mean if you look at what's embedded in our guide, 4% organic growth, right, top line growth, mid-single-digit growth across discrete 'and hybrid and low single-digit growth in process. We have some outliers, some standout performers. E-com and warehouse supposed to grow 10%. And we have some that are flattish, like semiconductor.

So if you look at what could actually improve to drive us to get to a higher end of our range, an improvement in automotive, even higher growth in some of the bigger end markets for us like food and beverage, more investment in process. So it's really around those. But in terms of where we're right now, we think those are good assumptions to have.

Yes. And then regarding the Middle East and what's been going on there for us, the Middle East is a relatively low exposure, I think low single digit -- very low single digits. And obviously, it's early days to really know what the exact impact for us and the follow-on impact. I think generally, themes around uncertainty and what that does to the broader macro environment, whether you're talking about that region or a broader part of the world, anything that brings uncertainty is something that is problematic. But at the same time, for us, the direct exposure is relatively limited.

How close do you guys have been talking about this kind of project pipeline and a decent amount of your revenue is CapEx related. It's not all new projects, of course, probably much smaller percentage of greenfield stuff. But the brownfield stuff still is a -- not an MRO, it's a CapEx type project. How close -- everybody talking about these pipelines, do you see all this news? How close are we to seeing some of that stuff really move in mass?

Well, certainly not close enough for us to change our guide, right? But certainly, we did see areas where there's investment. And it's not just brownfield upgrades and big migrations and new capacity, but also greenfields. And we talk about them on our earnings calls. It's data center, it's semiconductor, it's life sciences, it's parts of food and beverage.

E-commerce and warehouse automation is not necessarily viewed as that kind of a big greenfield or mega project, but that's really good business for us. And there's a lot of modernization there, and it's continuing to be a driver of growth for us. So we do see it. We see it in parts of process that are tied to data center, right, power. The AI constraints are driving a lot of investment there by hyperscalers and colocation companies.

So we see that, and we talked about these big projects growing strong double digits year-over-year. It's part of our guide. To the extent it becomes more a broader investment, more in mass, as you said, we'll be able to talk more about it and have higher growth.

And just taking a step back, there's been a bit of debate, I guess, around the order rates or the book-to-bill in the first quarter. Maybe you want to clarify, I know the Life Sciences book-to-bill seasonally was pretty solid. And I think the takeaway from the call was that book-to-bill in total was around 1, which would imply that the products book-to-bill is below 1, just definitionally. Maybe you want to clarify that right into.

I'll take a swing at that and Aijana, you can jump in if I miss any aspect around it. So Rockwell historically, if you go back pre-supply chain crisis, pre-COVID, organizationally, we've always had a book-to-bill that's in the neighborhood of 1. And when I say in the neighborhood of 1, it's a band, right? It's -- and especially for us, seasonality is important.

So the first 3 quarters of the year tend to be a book-to-bill that's a little bit above 1. And the fourth quarter of the year, just because we completed a lot of project activity, it tends to be just below 1. But overall, for us, when we say about 1, that's really what we're talking about. That is a book-to-bill could be slightly above 1, and we'll still say that it's about 1.

And so if you look at the -- sorry, so during the supply chain crisis, especially as we went through the destock time horizon, we were giving detail to the Street around what our incoming orders were, and we did that in order to make sure that there was really good visibility on what was specifically happening in the destock cycle. Once that settled in and we had gotten past that moment and that book-to-bill had gotten back to being right on top of each other at about 1, we decided that it was time to take that data point away because -- and we always intended that the data point was going to go away.

We put it in there for that window of time. And so we did that, what, 5 quarters ago, I think now. And the reality is that if -- and we've got our own internal process in place that says, hey, if it goes outside this corridor, we're going to tell folks. We're going to give that visibility again, and it hasn't gone outside that corridor. So it's been right around that 1 number. So you certainly shouldn't look at the Q1 performance because I mean, when we say about 1, and we have Lifecycle Services that was a 1.16, which is one segment of our business, we do actually give book-to-bill for that segment because it is more of a project and solutions-related business.

So we give that visibility. But just because that one was 1.16, you should definitely not take it to being that we are below 1 on the rest of the business because that is -- that wouldn't -- that would be the wrong conclusion to come to.

So within the corridor doesn't necessarily mean at 1, it could be above 1 within that corridor which classified, and that's makes more sense.

The ISM has -- obviously, people look at that as an indication, but I think it's obviously decoupled in certain periods of time. Are we kind of back to -- are we in a normal enough environment now where the ISM is more useful than it's been through the whole supply chain period?

I think it's more useful, but it's not -- it's one of many data points we look at, right? So ISM being constructive is a positive, it's not the only thing. We look at other areas. We talk about unemployment, we look at consumer health. We look at what are we hearing from our customers. Ultimately, they vote their wallets. And so that's what we talk about order intake across industries. That's what drives our guide and our confidence in getting there.

Yes. And honestly, there's lots of different data points for sure, there's nothing more important for us than what we had for orders in the most recent period, whatever that period is we're looking at. And I think Steve actually do a really good job of pulling apart the data points that make up the ISM. And I think not every ISM is equal as far as those data points go. So some of those are also really important for us as we those as well. And ultimately, how that translates to industrial production is also super important.

Like you're talking within the ISM, like new orders, inventory index or something like that.

Right. Exactly.

Yes. Yes. And the last ISM was a little bit punky with the prices paid and inventories. On the secular aspects of the story, maybe talk about what you're seeing on the whole onshoring theme and maybe which verticals are you seeing the most activity around.

Yes. Steve, it's really tied to the early discussion we had. We look kind of lump whether it's shoring, new capacity expansion, mega projects, all into this one bucket because it's really the same set of technologies we provide across those different types of projects and across different types of industries because we are largely horizontal from a technology standpoint.

So we track and we talked about if it's a greenfield activity, a lot of it is data center, data center, semiconductor, life sciences, a lot of big brownfield expansions and projects we see in food and beverage, parts of personal care. warehouse automation is a big one. We talked about it, whether it's partial companies, whether it's e-commerce players, traditional retailers, there's a lot of need for automation there.

So we see that. So process. So critical infrastructure, especially in the U.S., is aging. It needs to be upgraded. And whether it's more power that's needed to fuel AI needs, whether it's more resilience and energy management on the traditional oil and gas, whether it's chemicals and water and industrial water, again, to serve the needs, increasing needs of data center, there's opportunity to upgrade and provide that automation and digital and software and services to drive that upgrade. So we're feeling good about it. It's across different industries. But as I mentioned earlier, it just -- it hasn't happened where it's happening across a broader set of industries for us yet.

Auto is not a huge market for you guys anymore, but it still seems to be like a bit of a swing factor and obviously a good indication of an economically sensitive part of the economy where there's investments. What's the complexion of auto investments these days? And whether it's EVs or ICE and what types of projects are you seeing on the auto side?

Yes. What we're seeing there is a lot more focus now on traditional ICE and hybrid. Certainly, EV is still an area of investment, and we talk about Hyundai, we talk about Rivian and Lucid in terms of their investments in EV as well. But what our customers, the brand owners and the tier suppliers who support them, what they're doing is looking at what the consumer wants, right?

They're looking at the consumer adoption and they want to be lockstep with their needs. And a lot of it is, okay, it's a combination of traditional internal combustion engine vehicles and hybrid. And our technology is very well positioned to serve those needs. Clearly, automotive customers have been challenged. First, they have to deal with the evolving consumer needs. And then, of course, we have this trade uncertainty, tariffs, geopolitical volatility. And they have to decide what their road maps going forward.

They have a much better clarity on what they want to do, where they want to invest. Right now, what we see is a lot of investments in AI and MES and modernization and productivity. Once there's more stability, we do expect CapEx to pick up. We're not counting on it in our guide, but there's a lot of optimism there, of course.

And to your point, it's a little more I guess, software specific? Or are you seeing -- is it Logix rich? Is there upgrading the hardware as well?

Oh, yes. When we talk about whether it's productivity, modernization, it's a combination of hardware, software and services. You have Logix, you have our HMI, you have our drives, you have our software, a lot of -- there's a lot of opportunity to increase throughput, increase quality even in a very automated industry like automotive with software. That's where our manufacturing execution system software comes in. AI, process optimization. And so -- yes.

I don't think we can forget the -- don't forget the AMRs.

Absolutely. Autonomous mobile robots, they have been a game changer, especially with the labor force, scarce labor force and the cost going up. And so we see that in automotive, but also broadening across other industries as well.

And your AMR exposure, what's the revenue base now, and that's growing, I would assume, pretty fast.

We haven't shared the exact number, but we have shared it when we first acquired it. So it's not a big part of our Intelligent Devices revenue today, but it's been growing double digits, and it's slated to continue to grow in double digits. And importantly, we expect it to turn profitable later this year.

And maybe just talk about the applications there, just a bit of back up a little bit, explain the strategic rationale of the deal and then what you're seeing, what new applications you're seeing here that are driving growth?

Absolutely. And if you look at what this acquisition provided was really an ability to serve a white space. Production logistics is basically moving material from one assembly line to another assembly line or to the finished goods line in the production facility. So it's not necessarily in a warehouse or somewhere else, it's more in a manufacturing environment, which is what our customers do across many different industries.

And so they might have very automated manufacturing cells, production lines, but you still have a person pushing a carton from one side to another or someone driving a manual forklift. So the opportunity was to see how can we make that movement more autonomous, more safe, AI optimized and also feeding all that information into our FactoryTalk platform.

So at all times, we know what's happening, where are the opportunities for further improvement in productivity, would there be some safety issues? How can you continue to optimize real time? And that opportunity to integrate mobile automation, the mobile robot with our fixed automation, with our controllers, with the MES, right, with our FactoryTalk, that's something that no one else has. And it's a business that's slated to continue growing strong double digits. And so it's an opportunity for us to differentiate and none of our competitors have that.

And I think it's like born out of the warehouse environment, but you said you're applying it in auto. Is it something that can be really across the food and beverage...

Yes. Food and beverage. So we have wins in food and beverage, home and personal care, life sciences. We have some pilots in semiconductor. We even have some actual use cases in warehouse, it's just not the primary focus. But if you think about some of the irregular payloads that are needed there in the fulfillment. But it's really across the board. Anywhere you need to move things around.

Okay. From a hardware perspective, also just Logix, where are we in kind of the Logix growth cycle? You guys went down a lot. I think you're up a lot. Where are we in that continuum?

Yes. Logix has recovered really nicely from where we were. There was -- certainly, when we talk about destock, Logix was definitely part of that destock cycle. That's definitely behind us. When we look at the volume of Logix, that is when you adjust for pricing changes that have happened, we believe that this year, we're going to be back at kind of around the 2019 level and that implied in that is that we're going to have some good growth the remainder of this year. It has been a good grower for us over the last several quarters as well. So Logix has been a really good story that's been part of the broader Rockwell good story that's happened over the last 4 or 5 quarters.

And from a mix perspective, I know it's accretive to the company average. Is it also accretive to the segment average from a mix perspective? You got a lot of software in there as well.

Yes, there's a lot of software in there as well. So they're both highly profitable, and we'll -- we're happy with the volume that comes, whether it comes in software or in Logix.

Is there a new innovation in Logix that could emerge in the next several years? Or is that refresh happened? And what kind of technology road map in Logix for the next 3 to 5 years?

Absolutely. We continue to innovate. In fact, we just launched our L9 controller that has even more performance features in a lot of different applications. We are talking about software-defined automation, and that's also slated to launch soon. We continue to innovate. And the important part is that innovation cycle continues to accelerate. What maybe took several years, if not more, to develop from a hardware standpoint for the next launch.

Now it could be every year, every few years with a lot more features. And then, of course, on the software side and services side, we launched in a much more agile way, right, very frequent releases. Importantly, what we're doing is it's embedding AI across that whole stack, and it's not just controllers. It's not just the Logix AI, but it's Guardant AI. It's AI in our intelligent devices. It's AI in our control, AI in our software, including Plex and Fix and in our services as well.

Maybe we can just talk about that aspect where I think there was some chatter, I guess, I'd call it a couple of weeks ago about the threats from AI disruption in manufacturing from some venture capital funded things. Maybe your message about how defendable your software is and then obviously, how defendable your position is on the plant floor from disruption that has to do with the emergence of AI.

Sure. Just to level set, software, stand-alone software is less than 10% of our total revenue. We certainly have a lot of embedded software that's in our hardware that makes it very valuable and smart. We also have annual recurring revenue. It's a metric that measures recurring software and recurring services. That's in that 10% of revenue range as well.

So if you look at the composition of our software, of our stand-alone software, it's a combination of our design and automation software, which is what our customers buy and use to digitally simulate to emulate, to design the automation systems and then to interact with them throughout the cycle. They are tightly integrated. Yes, they are sold separately, but they're tightly integrated with the embedded hardware systems that are on the plant floor.

So very strong moat there and decades of expertise, domain expertise there. And we continue to innovate there using AI, for example, with Gen AI, how we help the productivity in terms of software development and how much quicker you can do that using natural language instructions, for example. So that's one aspect. The other part of it is really executing production orders on a plant floor.

It's telling which part of the car to show up to which manufacturing cell at the right time to optimize the process to increase the throughput, right? So manufacturing execution system software, it's mission-critical. It's interacting with the processes that are moving in microseconds, right? Just think about high-speed packaging or processes on a plant floor that have people around them. So very strong moat there as well.

I mean you don't have the luxury of having an AI hallucinate something or -- and deviate from the process because you can lose millions of dollars if something is not actually performing the way it should be. And also in worse, you can have a lot of safety issues with people that are interacting with the processes. So we have a very strong moat. The way we look at AI, whether it's software or hardware, is really as an enabler.

It is -- as I mentioned earlier, we're looking at it from a very practical standpoint. Our customers already have a lot of our offerings, our controllers, our drives, our sensors, our software. We are working with them to figure out and to help them embed AI within that, right? So we have Logix AI, Guardant AI, Vision AI, [ Cote ] AI, so they can actually drive benefits. They can see that with what they have. Now of course, at some point, they will have to upgrade some of that hardware or if they're using our hardware from previous generations, they will need to have something newer to be able to handle the compute power, the cybersecurity needs, the safety needs that are inherent in the process. But we are looking at it in terms of what's the best ROI for customers, the best sequence of how to do it.

And we have our digital consulting group to help them. That's what they do all day long. They work with our customers, the C-suite to figure out, okay, what's the best way to tackle it? What's the business case? Does it make sense? And importantly, we do it for ourselves. So we talked about how we do rock on rock. We use AI in our own facilities, in our plants. We use our AMRs in our facilities. We use our digital twin offering in our facilities to drive productivity. And we are an automation leader. We -- our plants are automated, but there's still a lot of opportunity to drive even more productivity and margin expansion.

Right. I mean that's what's been interesting about this kind of software debate is the indiscriminate nature of how they're looking at mission-critical [indiscernible] software?

Yes. One more thing I'll just add on the AI front really quickly. AI thrives on having a lot of data to be able to train the agents and the models. The data that's flowing through our PLC and the data that's flowing through our MES software, billions of transactions that are happening daily, its proprietary -- it's not available in the public domain. So we are using that data to train our models to be even more robust and effective, but it's not available for anyone else to train.

Right. And so while the customer has the data for their specific recipe of how they make Pepsi or Coke or something like that, the data that's coming off the equipment that relates to productivity, machine uptime, all this kind of stuff, you actually see that data and you can leverage that data into your development process.

Absolutely. We aggregate data and anonymize it, and we can drive a lot of great outcomes for customers across many different industries. Absolutely.

Yes. Okay. That makes a lot of sense. Just lastly, it's a big market for you guys on process. I know you touched a bit on what's growing there, but what's kind of the outlook for process? And it's a big market for you guys. What are you seeing there?

Yes. I mean we're not guiding to anything heroic. What's embedded in our guidance is low single-digit growth for the entire process segment. Within that, of course, we have some differences. You have energy, you have -- which includes for us, oil and gas, renewables and traditional power. You have chemicals, mining, pulp and paper, water and some of the other ones. And a lot of what we see really is focused on capital discipline and productivity. We haven't seen a lot of big CapEx investments yet.

At the same time, we have seen investments to drive power for data center needs. And that is touching traditional power, that's touching energy, that's touching other areas of process. So we have a good opportunity. We also look at gaining share, and we look at competitive conversions, and we think we're well positioned. But we'll have to see what the CapEx environment is. As we mentioned before, it has been pretty tepid.

So just moving to the bottom line. I know that's been a big focus on the margin front and the productivity and the SKU rationalization that you guys have talked about some really strong strides here early on. Maybe talk about your confidence and timing on the 23.5% margin. And then how much opportunity do we go do we have?

Yes, absolutely. So highly confident that we're going to be able to drive towards that 23.5% segment operating margin for the total company. I haven't given a time frame on that. We did actually change -- this started off that target when we originally put it in place, we call it a long-term target. We changed it last November at our Investor Day to a medium-term target.

So I guess we did pull that time frame in a bit. So we're still a couple of hundred basis points out from -- based off of our guide for fiscal '26 to where we need to go for that 23.5%, trajectory has been good. There's a lot of activity that's going on inside the organization. You hit on a number of them, and I think they're all important. Volume certainly drives that. We've got a really good pricing discipline and good pricing motion right now that's helping with that.

We've got activities that are happening from an operational excellence perspective. So we have done some SKU rationalization. We probably dropped the number of SKUs by upwards of 10% over the last 18 months, give or take. There's more work that's happening there. I would say that the low-hanging fruit is behind us, but we are working on demand shaping because that demand shaping is super important for us to think about getting good flow through the factories and getting good productivity.

And then we have the continuation of what originally was our cost reduction and margin expansion program to now a longer-term productivity and operational excellence program. That is we're not putting targets out there anymore for the public domain. We certainly have targets and they're very well known inside of our operations, but we're not talking about it publicly because this is a way of life for us now. Continuous improvement is never going to end at Rockwell. We're making it part of our livelihood. We want to make sure that we're doing that in every which way.

So the number of projects, this is the most interesting part for me is that as you get into these programs and you go from transition from a moment in time to a way of life, you certainly can take your eye off the ball. The good news is that we've got a really good muscle memory that we've built. And so the number of projects that we have in our system right now are more today than what they were 12 months ago, 18 months ago. Now the average size of those projects, they're smaller.

That's not necessarily surprising because, again, we've taken some of that early action where you're going after the bigger opportunities. Now they're smaller opportunities, but this is how you do it. This is how you build really strong margin profiles, both on the gross margin and the operating margin side, and you do it for the long term and you're not doing with little blips, you're instead doing it the hard way, you're getting it the hard way, and that's the way it becomes sticky.

When you look at the different buckets of opportunity, where are you seeing the most success where you're ahead of plan? And where are you seeing maybe ones that are a little bit more of a heavy lift? Clearly, you're -- I think you're outperforming what I would have expected. So on net, it's better. But where are you -- where are the easy wins and where are the tough ones?

Yes. I mean the hardest one just from a difficult leadership perspective, but the one that, of course, is probably the easiest and the best yield possible is on headcount reduction. That's -- for the most part, that's behind us. So we did that very early on in the process. And the good news about what we're doing is that we actually have it staged out.

So there are things that have kind of in-year, 4-year benefits, but then there's also longer-term benefits. So material cost, negotiating with -- on the direct material side, doing things with indirect spend, that all happened fairly early on, too. Now we've got a really good activity around trying to make sure those costs don't eke back into the business. So that part is good.

On the medium-term side, we are doing some more in-sourcing. We're doing more things for ourselves. We're trying to take people out of our profit pool. So that's not just on the manufacturing side, that's actually happening in the SG&A side as well. And then the longer-term stuff, we're really looking at kind of reimagining our manufacturing footprint, reimagining how we actually build our own product.

And that is really -- it's taking -- that one is more around a transition of mindset, going from an asset-light organization to one that's more asset-intensive and going back to pick up areas of the profit pool that have been left for others to take because we were outsourcing a lot of things. So that allows us to rethink of our manufacturing footprint while at the same time, bring more things in-house.

That one is hard. It takes a long time to do it, but Rockwell's got great tools for that. Emulate3D is a big help, the digital twin technology that we're using in our factories. So it's a heavier lift. It's going to be a longer time frame. But again, these are the kind of things that give us the ability to be able to do this for a long time into the future.

So should we think about assuming you get to 23.5%? When you look beyond that, do we have another kind of like hard target? Or do you think about it more as the algorithm? And just remind us of what your algorithm is today from an incremental margin perspective?

Yes. So these are all -- they all kind of go part and parcel together. So it starts with our growth algorithm, which is a 5% to 8% organic growth, which is made up of secular growth, market share gains as well as ARR driving the top line. And then the incremental margins that we're going to get from that growth is in the 35% range. And that's what we're signed up for as an organization.

And ultimately, that drives us to that 23.5% total company. We have that broken out by segment. You can certainly see that in our investor slides. And we have that in hand today. We know how we're going to get to that 23.5%. And we've got -- so we've got really good plans in place. When we do get to that point, when we achieve that and we come out with new targets, there will be tangible targets.

There's going to be tangible targets around what the margin profile is that we're looking for by segment, again, we -- and so we'll give a corridor for each segment. We'll give a total company average number that we're targeting. We'll also talk about the incrementals and what we expect that to be. And while we're doing that, we will also look at the top line growth algorithm. I'm not sure we're going to change it, but we're going to look at it, and we'll have that conversation when we get there.

Okay. So that's -- and that would be obviously -- we'd be able to kind of figure out a time frame using an incremental margin, you can kind of back into what time frame, I guess, that would be.

Yes, you would have to obviously come and put your own view on what the top line is going to be by period to period, but yes.

On pricing, where do we stand? There's a little bit of inflation, not so much where you guys? What you guys buy. Correct me if I'm wrong on that. Are we kind of in a more normal pricing cadence? I think you're doing April?

Yes. So we're doing an April price increase that's known to our channel partners right now. We've given some visibility around that. We have 2 aspects of price that are happening. So that's our annual price increase, which is -- last year, we did our annual price increase early. We did it in February. This year, it's in April.

So we are going through a window of time just for a couple of months where we don't have an annual price increase against our comparable, but not super worried about that. So that's one aspect of what we do on price. There's another aspect, of course, that we're doing on pricing related to what happens with tariffs.

So if we can't avoid tariffs and ways using supply chain, we will go and we'll make adjustments to price in order to recover for that on both -- on the bottom line. And the objective around tariff-based pricing is we're looking for earnings neutrality. So that's in place right now. But overall, the pricing environment is still fine for us. If we enter into an inflationary period and we have to make other adjustments, we're in a position to respond to that.

Any questions? Okay. We're out of time. Thanks a lot, Chris.

Okay. Thanks.

Thank you.

Great. Well, thanks, everyone, for being here. It's my pleasure to have up next, Rockwell Automation. We've got Blake Moret, Chairman and CEO; and also as Matheus Bulho, SVP of the Software & Control segment. So obviously, a very topical point of discussion around software right now.

So I appreciate you both being here. And Blake, I think you had a couple of prepared remarks for us.

Yes. Great. Thanks, Julian. So I know a lot of you have followed the name for a long time. I appreciate the interest this morning. I wanted to make a couple of comments to kind of frame the questions and answers.

So to start with, Rockwell has become a considerably more resilient company here in the last few years. If you look at the distribution verticals that we serve, you may be surprised to see that process is actually the single largest served vertical, and that certainly helps with value through the cycle. We've also added annual recurring revenue, a mix of software and high-value services, continues to grow well. It's profitable for the overall company and a little greater than 10%, that combination of the software and the services.

And then finally, really a redoubling of the focus on operational excellence. And you've seen that manifest itself certainly in terms of continual expanding margins here over the last year or so, and we have every intention of continuing that.

We have a great mix of offerings for verticals across discrete, hybrid and process end markets. And what we're aiming for is to be able to provide the best solutions in the production environment. And in fact, today, we are the most used technology in American manufacturing.

We introduced this growth algorithm in November of 2023 to reflect the strong secular attraction of automation and digital transformation, our confidence that we can gain share and add new served market as well as the contributions from annual recurring revenue and a modest contribution from acquisitions as well. We're taking a prudent approach to our guide this year, but there's a very good chance that we're going to be able to get into that 5% to 8% organic growth range as we move through the year.

We take an intentional approach to the end markets that we serve. Some of the areas that we're proud of our growth in that weren't traditional Rockwell strongholds would include things like data center, still small but fast-growing served market for us that I'm sure we'll talk about in a minute; other aspects of e-commerce and warehouse automation; life sciences as people, I think, are going to continue to want to live longer, healthier lives, and we have a very good offering in that area of high investment as well.

We have some important enabling technologies, software-defined automation, the pervasive use of artificial intelligence as well as integrating robotics into a complete automation system and, obviously, all guided by the domain expertise. The understanding of manufacturing in these specific applications still matters even with all the new tools.

We also introduced margin expectations by segment and we're making good progress there. We're already in the corridor for Lifecycle Services. We've seen that point reached with Software & Control, Matheus' business. We still have a little bit of ways to go in Intelligent Devices, but with some very specific plans to continue that journey in all of these businesses. And you should certainly not look at the upper end of those corridors of margin performance as an absolute ceiling. We have plans to go to and through these figures.

And we're going on offense. We've announced that we're going to be spending at a little higher level. I think it still keeps us in the asset-light category. But deploying capital in the service of increased market share and expanding margins, we believe, is a good bet to make. The primary areas are plants, talent and digital infrastructure. We're happy to talk a little bit more about that. But that's already started with our existing facilities, modernizing them, applying the same technologies that we sell to customers. And it's yielded some pretty impressive results of our own factories so far.

And then just to recap our full year outlook. Guide currently sits at 4% organic growth at the midpoint. But as I just said, I think there's a good chance that there can be some upward pressure on that. Mid-single-digit top line growth, double-digit growth in earnings, and we are intentionally focused on both.

So with that, we can get into the Q&A.

Fantastic. Thanks very much, Blake, for that. And maybe just to follow up on where you led off and concluded there. So you have the 2% to 6% organic sales growth guide for this year. You have that 5% to 8% medium-term goal, which you said there's a good chance of hitting this year. So maybe help us understand what explains that confidence at the upper end of that growth guide for this year looks more likely.

Sure. So the sentiment on the part of our customers is positive. What we are looking to see is that sentiment turn into actual orders across a little broader swath of our served verticals. So we certainly see it in some areas, e-commerce warehouse automation. We saw it in chemical actually in the first quarter. Our traditional markets were in growth, which is good, automotive, food and beverage, oil and gas.

But a lot of that activity still is in modernizations of existing facilities. Customers are still holding off on some of their larger capital projects. And while we're working closely with them on those quotations, looking at the impact of new technology to, in some cases, add to the original scope of supply, I'd like to see that show up in the orders a little bit more.

So that's kind of what we're looking at. Obviously, we have home field advantage, where so much of this investment is taking place in the U.S. with, by far, the largest installed base, the deepest relationships, the best channel and so on.

And if you focus on the U.S. in particular, I think a lot of investors are wondering, kind of U.S. short cycle industrial recovery, is it happening now after a lot of anticipation for 2-plus years? Sort of what's your perspective on that? How are you seeing CapEx intentions among your U.S. customer base?

So as we've talked about the last couple of investor days in November, there's a lot of CapEx that's been announced. And it's a nice split between some of the industries that are a little bit newer to us, like data center, and also traditional industries that we have a long history of serving in the U.S., food and beverage, energy, pharmaceutical and so on.

So I think it's a little bit early to sound the starting gun and say, it's here, the dam has burst. But our first quarter demonstrated that we are seeing a higher amount of orders for new capacity in the U.S. than we saw last year, for instance. It contributed to North America having the highest year-over-year growth. We do expect strong double digits for orders in that new capacity for the full year, but it was against high expectations as well.

Got it. And when you think about those customer sort of appetite on the double-digit new capacity growth, is that fairly broad-based, that double-digit orders growth? Or it's concentrated in a couple of industries?

I think it's fairly broad-based, what we've seen.

And then if we think about away from the product side, on Lifecycle Services, the backlog has been under some pressure, on and off in recent quarters. How do you see the demand outlook there?

Yes. So Lifecycle Services, actually, we see the comparables get easier through the year. We did start out with a strong book-to-bill ratio of 1.16 in Lifecycle Services. But that's where you see my earlier comment about customers are still holding back on some of that capital.

Now I should hasten to add, you shouldn't equate new capacity as just orders in Lifecycle Services. A lot of that new capacity will manifest itself in terms of Matheus shipping more Logix processors to a machinery builder who's serving one of the big end users, or an EPC, an engineering firm that is going to be sourcing that equipment and then supplying it to a system integrator.

So the margin profile of that new capacity business is actually pretty good. Don't assume that it's all in the lower-margin Lifecycle Services. Although, obviously, we've made some nice strides in increasing Lifecycle Services margins here in the last few years as well.

Great. And maybe, Matheus, sort of flesh out where we are in that PLC, the more sort of control side of your segment. There was a big restock then a destock then a restock again in PLCs. Where do you think we are in that product category versus kind of trend growth if we try and zoom out from the de- and restock ups and downs?

Yes. So you saw in our first quarter, we had a fairly good quarter for Logix, 20-plus percent year-over-year growth globally, in particular, North America, even higher, 25-plus percent year-over-year. We expect Logix to continue to improve. We're looking at second quarter sequentially low single digits and, for the full year, very much in line with the segment.

To your question on destocking, I think as you saw us comment on that during the call, that's behind us. We have very strong visibility into distributor inventory. We know what distributor shipments are and we can compute the turns fairly easy, and it's been quite stable there. So I think that's a nonevent at this point.

Got it. And what do you think the sort of growth entitlement is for Logix from here and medium term? And should this year's growth rate kind of line up with that medium-term trend expectation?

Yes. So we have enough indication to conclude that we've been able to manage through this cycle from prepandemic to now and achieve share gains across the globe, frankly. We're continuing to invest in R&D. At a company level, we allocate around 8%. But as you would expect for Software & Control, it's higher.

We have a good start point with new product introductions being adopted. This year, in particular, Logix has a new platform that's off to a great start, even though it's smaller numbers at the early stages. And a fairly healthy pipeline of innovations, as we discussed at Automation Fair in Investor Day. So we'll see additions to the Logix portfolio not just last year, but this year and the year after that. So we're bullish about what Logix can continue to do for us.

Got it. So even though we've had that restock behind us now, the growth outlook still looks pretty good for Logix and the Software & Control segment.

Yes. The comparables get harder throughout the balance of the year, just like most of the company, but prudent optimism.

Yes. And this is value across the served verticals, so certainly in our traditional served verticals like automobile manufacturing, food and beverage, pharmaceutical, but in the newer verticals like data center.

One of the real engines of our growth there is the conversion from traditional direct digital control in the building management systems to Logix, where people like the high availability, the safety, the ability to standardize on a single control platform for multiple applications. So that's been a strong growth for us. And obviously, where a lot of the investment in data centers are is in the U.S., where we have, by far, the largest share.

Great. And is there a way to sort of size, I don't know, the orders you've seen in the data center vertical or what proportion of revenue or orders data center could be exiting this fiscal year?

I'm not going to pin a specific time on it. We've talked about low single digits. But data center continues to invest. It's not unrealistic to think of data centers as 5% of our business in a not-too-distant future.

Yes. And I think that you had extraordinary growth in the first fiscal quarter in some areas like food and beverage and home and personal care that people might normally think of as being steadier industries, at least the revenue growth of the customers. Why is their spending, why did it have that bounce in the first quarter? Any sort of specific comp tailwinds that helped? Or they should be set for pretty good growth for the year?

Yes. So food and beverage is our largest served vertical. A lot of that activity is still in modernizations. And quite frankly, it's applying areas of new value that we've acquired or built in the last half dozen years in installations that may already have our control, our traditional sources of value. So cybersecurity rollouts and contracts there, being able to add supervisory control that's tightly aligned with the hardware where, again, we have the knowledge and the intimacy of those actual applications.

Home and personal care, you think about tissue and diapers and things like that. Actually, that was against a fairly difficult comp because home and personal care was growing last year, but we have a great readiness to serve. And again, there, some of the big orders we've received recently had large amounts of product from the so-called production logistics area, so a large amount of mobile robots, for instance.

Whereas the project in the past would have been PLCs and drives and motion. And that's all great. And we love it, we do. But being able to add the new value from mobile robots as those customers also share that vision of being able to integrate these multiple parts of modern manufacturing together in a single architecture.

Great. And then maybe away from the cycle, a lot of questions around the pure, let's say, software business at Rockwell that's not embedded in hardware but sold straight to customers. Maybe kind of size that business and, yes, where to begin, broad thoughts on...

Is it resilient?

Yes.

Sure. So look, our annual recurring revenue is a little bit over 10% of Rockwell's total revenue, and that's roughly split between software and high-value services, things like cybersecurity contracts and so on. Our total software business, just software, is less than 10% of our business even when you add in the part of software that's sold as a perpetual license.

We see no indication whatsoever that, that's at risk. And in fact, we see opportunities for us to be a winner by incorporating artificial intelligence in that software. And there's a few reasons for that, I'll mention some and then Matheus can add some additional detail to it. But first of all, the software that we provide is closely integrated with the hardware in a runtime system.

Second, you look at the importance of that software in mission-critical applications, often in highly regulated environments where it has to be performed, the logic has to be solved in exactly the same way over and over, which is a little bit different than the way an AI-only system would be based. It's highly deterministic. You're closing a control loop in milliseconds of time.

We continue to test our assumptions there. But when you look at our ability to continue to expand our software and even grow the value through pricing and upselling and so on, we feel very comfortable with net dollar retention rates of over 100% for large parts of that business.

Yes. I think it was quite good there. I mean, there's strong network effects beyond what's embedded, computer software. There is a tremendous amount of criticality to the execution. And these are runtime systems. These are not seats on design environments. And there is a fair amount of context that's specific to the industry that creates, I think, fairly strong moats for us.

I would only say that the cost of software is well beyond the development of the product. It has a lot more to do with managing it through the life cycle and operating the software, which is where we add a lot of value and domain knowledge.

Yes. Domain expertise still counts for a lot in these sorts of applications. And that's what we have always said, is that it's the combination of the technology with the expertise that sets Rockwell apart and creates that moat.

And in terms of the type of software product, is it fair to say manufacturing execution systems, or MES, that's the lion's share of the pure software revenue?

Well, I think that's a big piece of it. But you also have the programming tools as well that are closely aligned with the specific runtime of Logix in particular, where you're actually considering Logix to be able to interpret inputs from a wide variety of very specific devices as well as change the state of the outputs of these other specific devices. So that integration with the hardware is not just the compute surface, but it's also the very diverse universe of I/O that, that system has to be programmed to interact with as well.

That's helpful. And I think maybe switching tack towards kind of the cost side of things. And you're one of the more semiconductor-intensive companies at this event in terms of, well, selling into the industry but also purchasing chips.

And Matheus, your segment, probably the lion's share of that buy across Rockwell. How comfortable do you feel about kind of chip availability in volume and then also the cost side of it and managing that?

Yes. We haven't seen an issue. We learned a lot, obviously, during the supply chain crisis back a few years ago. Memory is getting a lot of attention now. In some cases, we've actually increased our inventory of those memory chips.

Yes. Yes, absolutely. We have a lot of learnings from the recent supply chain set of concerns. Specific to memory, our usage is primarily on DDR3, not the DDR4, DDR5. But regardless, we're interested in improving our inventory position so we can service the customer. By far, our priority is ensuring service levels there.

Great. And the cost of a lot of things, you mentioned memory chip prices going up. How is Rockwell's pricing strategy playing out? I know that's been a big kind of renewed push the last 18 months or so. What kind of pricing are you pushing through on the hardware side? And do you need to go and do another round of it just because of inflation of things like chip costs at present?

Yes. We do expect that we'll be able to continue to get high realization on price. Two broad categories of the annual price increases to cover things like general inflation and just to capture the value of our products.

When we talk about 1 point of price, 2 points of price, we're typically referring to what we're getting on the hardware part of our business. We're getting price as well in the engineered solutions. We're getting price and software. But we're not talking about that in the same way as the products. And so there's that piece.

And then there's the tariff-related pricing. We've chosen an approach to make sure that we remain EPS neutral in terms of whatever tariffs are thrown at us and our customers and to be able to manage that with a high degree of transparency with our channel, with our customers. So if a tariff was removed, we would be able to do that and still have the same conversation with our customers as we're having with investors to say, that's coming out. But whether it's us going in or coming out, it's EPS neutral for us.

And so I feel good about that. We continue to look for opportunities to increase the amount of annual price that we can get on products with a more surgical approach. We made a lot of strides, I'd say, 7 or 8 years ago with more analytics. But there's still plenty more to be done. It's a great data set, very rich data from around the world by customer, by region and so on. And we expect to continue to focus there as well.

And on the margin front, company-wide, you mentioned the kind of to and through view to get kind of to that low mid-20s, 23%, 24% operating margin and then push through it. When you roll together the sort of price initiatives, a pretty good volume growth outlook, what kind of incremental margins should we be expecting in the medium term?

Yes. I mean, this year, we talked about 40%. We still haven't changed the kind of medium range guide of you should expect 35%. That was up from 30% to 35% not too many years ago. I'd kind of like to have a little more wholesale changes in what you should expect midterm rather than dribbling out margin a little bit higher in this business segment versus another incremental is a little higher and so on.

But we continue to look at that, and I want to make sure that we have a firm line of sight and achieve the current set of goals. And in due time, we'll talk about the next set of goals. We're not done by any stretch of imagination. I'd say we're a lot closer to just getting started, really.

And then lastly, maybe there has been more interest in kind of humanoid robots on the plant floor, and there's a broad debate around the use case for that. But wondered sort of your perspective, how is Rockwell positioned for that if we really see an uptake in that approach?

Well, I'm happy that we got into the robot business directly with the acquisition of Clearpath and auto motors, AMRs. There's also a Clearpath research, which does some of the more, let's say, exotic forms of robots. I don't see a near-term pervasive use of humanoids. I think there's some good technical reasons for that.

One is you just don't need that many degrees of freedom for a lot of the tasks in manufacturing. AMRs are seeing widespread adoption. You're also seeing the technique of mounting an arm on top of an AMR as a mobile manipulator. And as complex as that equipment is, it's still far less complex than figuring out the individual finger dexterity of a humanoid.

And wheels in many manufacturing environments are actually a pretty efficient way of moving things around as opposed to a humanoid, which you have to worry about stability and arrest state, battery life. There are just some other things that -- I don't want to say never, of course. And I think humanoids will have application in other aspects of our everyday life, but I don't see it as a near-term threat in manufacturing.

Great. And with that, we'll turn to the audience response survey, please. So the first question is around sort of current ownership of Rockwell.

[Voting]

So about 3/4 are not yet. Second question is kind of general attitude to the stock today.

[Voting]

So pretty balanced. Third question is around earnings growth for Rockwell versus the sort of multi-industry average.

[Voting]

So in the middle of the pack. Next question is on uses of excess cash.

[Voting]

So buybacks are the biggest portion there. Next question is on valuation multiple, just sort of year 1 PE.

[Voting]

So around kind of 20-ish times. And last question. Kind of what's the biggest anchor on the valuation or reason not to own shares right now?

[Voting]

So organic growth, the biggest question. So we'll see. Well, with that, thanks so much, Blake, and also, Matheus, for being here. Thank you.

Yes.

Good seeing you.

Thanks a lot, Matheus.

I think we're on. We're very excited for you all to be here. Welcome to Citi's 2026 Global Industrial Tech and Mobility Conference. I think we've got a great slate for you that over 160 companies this year. I'm Andy Kaplowitz, Citi Group's multi-industry and E&C analyst. We are very excited to have Rockwell Automation with us. Rockwell has been a mainstay of the conference. Rockwell starting now today is awesome.

Thank you, Blake. So we have Blake Moret, who's our Chairman and CEO; and Matheus Bulho, who is Rockwell's SVP of Software and Control. So I'm going to turn it over to you, Blake. I know you have some opening comments, and then we will go into Q&A.

Well, good morning, everyone. As Andy said, I'm Blake Moret, Chairman and CEO of Rockwell. I'm going to start with just a few framing comments and then looking forward to the fireside chat. So many of you have followed Rockwell for some time. I'd like to make the point that Rockwell has considerably increased our resilience in the past few years, more exposure across a wider variety of verticals, a discrete hybrid and process. Process actually makes up 40% of our total business. We've added considerable, profitable, annual recurring revenue. It's over 10% of our business, a mixture of software as well as high-value services and we've redoubled our focus on operational excellence. So that's certainly provided benefits throughout our supply chain.

We have a good blend of hardware, software and services to provide solutions. And in fact, today, Rockwell is the most used technology in American manufacturing. We introduced this growth algorithm a few years ago, 5% to 8% organic growth, a mixture of good secular trends, our ability to gain share, the impact of good growth in annual recurring revenue and then a modest amount of growth due to acquisitions. For this year, we're taking a prudent approach, but I think there's a very good chance that we are in this organic growth range this year. We take an intentional focus to the industries that we pursue, looking at growth, Rockwell's ability to win. And so as you can see, it's a good mix of traditional verticals that we've served for a long time as well as growing presence in new verticals, of course, including data center, e-commerce, warehouse automation and the like.

Enabling technologies include a software-defined automation, including good usage of artificial intelligence at all levels of the control stack. Robotics, both in terms of the equipment that we acquired from Clearpath mobile robots as well as good partnerships with the manufacturers of robot arms to be able to simplify the whole process of integrating automation systems that include the fixed automation that we're known for, but simplifying the integration with robotics, which are becoming more and more a factor in every vertical that we serve. We've also talked a lot in the last couple of years about expanding margins. We gave an overall company goal as well as corridors that we expected to achieve within our 3 business units. I'm happy with the progress that we've made, but we're far from done. And our approach spans multiple areas of productivity. It includes control of commercial expenses, direct material, indirect manufacturing efficiency, and of course, in all businesses and functions, the adoption of artificial intelligence to be able to simplify workflows as well.

And we're on offense. We talked a couple of quarters about spending, investing $2 billion over the coming years in plants, talent and digital infrastructure in the service of expanding market share and expanding margins. This really should be thought of as that kind of next tier of margin expansion activities, deploying capital in the service of greater efficiencies and greater operating margins. And just to recap our full year outlook, mid-single-digit growth on the top line, double-digit growth in earnings. And so with that, I'll take a seat, and we will take Andy's questions.

Thank you, Blake. So Blake, while you get settled, maybe just a big picture question, like thoughts overall on what's going on in terms of the global automation cycle. I think at your Investor Day, you had -- you showed a slide that showed significant investments in new capacity in North America. And we've talked about shoring gaining some momentum. We're hearing about a growing emphasis on physical AI. So you interact with a lot of manufacturers around the globe. Can you comment on the broader environment? Is the automation cycle beginning to get, I think you showed the slide with faster secular growth, 3% to 5% as part of your 5 days and maybe talk about that.

Yes. There's a lot of positive sentiment out there. It's manifesting itself currently primarily in the area of product sales. And of course, Matheus represents software and control which is a product-focused business products and software, they had a strong first quarter, actually a little bit ahead of our expectations. But where we're seeing customers still waiting for a little more certainty is in the major CapEx across a broad swath of the verticals.

Of course, enormous amounts of capital being deployed in areas like data center. Pharmaceutical continues to deploy capital with new capacity for GLP-1 and things like that. But across other verticals, a lot of the activity today is focused on products, modernizations, additional efficiency projects in existing plant versus building new.

Got it. And I think you want to be conservative, you have a guidance of 2% to 6%, as you know, in terms of organic for this year. But you've talked about -- and that's versus the 5% to 8% that you talked about for long term, but you've talked about this extra 1% to 2% share that Rockwell can deliver every year. So maybe talk about some of the initiatives you're working on sort of get to 1% to 2% share. Are you getting that better than market 1% to 2% share now?

Yes. So the 1% to 2% in that algorithm, first, just for context, 3% to 5% market growth, 1% to 2% in terms of share gains as well as expanding our served market then 1% from annual recurring revenue and then the additional 1% on average for acquisitions. The 1% to 2% share gains, given that we have the highest share in North America, and that's where a lot of the investment is. The math works in our favor. And we think we're doing a really nice job of not only touching base with the U.S.-based decision-makers, but also working with the machinery builders, the engineering firms around the world to make sure that they're comfortable using us when their end users do have a preference for Rockwell.

And so I think the share gains, particularly in Matheus' segment with controllers over the last few years, certainly a lot of volatility, but we do think that we're taking modest share. I think you all know in this space, share is a slow thing. Installed base matters a lot. We've got, obviously, a great home field advantage in North America. We're not complacent for a second, but we don't look at share and make a big deal over what's happening in a month or every quarter, but we're very focused on making sure that it's going in the right direction over time. The other piece of that 1% to 2% is expanding our served market and probably the best recent example of that is the entry into the mobile robots.

We had this notion that customers would like to simplify the whole business of designing and commissioning, and operating autonomous operations or semi-autonomous operations that span the fixed automation, the conveyors and the equipment, and the mixers and the extruders and the ovens that we've controlled for a long time, along with the mobility as people are going to more intelligent ways to move material around saving cost. That's expanded market, maybe $4 billion or $5 billion of expanded market that really none of our traditional competitors have. And so there's this opportunity to bring those together, to integrate the hardware and the software that was exciting for us and seems to have captured the imagination of a lot of our customers.

I definitely want to get to share a little bit with Matheus. So I'll get there. But I just wanted to talk about your comments on sort of these large CapEx investments a little bit more, Blake. Like -- because when I look at the one place where you report book-to-bill nowadays in life cycle services, you booked pretty solid, I thought, 1.16x. So are you actually seeing some modest improvement in customer decision-making? And then any sort of update on Q2? Like, obviously, you just reported a couple of weeks ago. But anything -- I think you said on the call that your bookings so far support your outlook, but is that still the case in the middle of February?

Yes. So sentiment is probably slightly better than we have talked about certainly a quarter ago. I think in terms of the new capacity, we're going to book more new capacity business this year than last year by a fair bit. And I think you see that manifest itself in a healthy book-to-bill number in Lifecycle services, 1.16. I want to hasten to add that when we get an order that ultimately adds to a customer's capacity in the U.S., it's spread pretty evenly across our business units.

So don't assume that that's people-intensive, relatively low-margin business. Lifecycle services certainly benefits from there, but a lot of that is Logix coming out of Matheus' shop that's going to a machinery builder is being specified by an engineering firm there. So we like the blend and whether we produce the solution at the end of the day or whether it's one of our partners, that's just fine for us. I would also say that the increase in new capacity orders manifest itself in the growth numbers in North America, which was strongest in the first quarter, and we do expect North America to be our strongest region for the year. So there's some good news there. But as we said on the call, we're looking to see orders across a broader spectrum of verticals and lot of good sentiment. We want to see customers to vote with their wallets and start placing those orders.

I think that's fair, Blake. And it's a good time to get Matheus involved then. Because some of the feedback I've got as well the Q2 guidance sequentially kind of more flattish, a little bit stagnant. But we know Logix has done well over the last few quarters. So is there anything you're seeing, Matheus, in cellphone control that would suggest to the environment is stagnant? Or is it maybe is Logix continuing to improve? Like how is the environment in your world?

Yes. No, there's nothing that suggests that it's stagnant. You saw we had a strong first quarter globally with over 20% year-over-year growth for Logix and in particular, North America with over 25% year-over-year growth. Importantly, we also saw growth in very important markets like Germany and Italy, machine builder markets that are important to the health of the business.

Sequentially, we expect Logix to continue to improve. We are expecting low single digits from Q1 to Q2 and for the full year in the mid-single-digit range in line with software and control. We have a very good start of adoption of new product introductions, including quite a few in Logix, a whole new Logix controller with the L9 that's off to a great start and a healthy pipeline of innovation that continues to come.

Matheus , just one follow-up there. Look, one of your competitors also talked about machine builders getting better. They just take their inventories down too much, like now they sort of have to come back? Like what are you seeing from those guys?

Yes, I think as we talked in the earnings call, I think the whole destocking, we're beyond that. So we don't see that as any nonevent at this point.

Yes. So Blake, we know you're extremely focused on building out ARR, right? And so that grew 7% year-over-year. We expect ARR to grow high single digits in '26. But it's below your double-digit aspirations and what you've done in the past, I think you mentioned that Plex is growing above average rates. So maybe you could talk about Plex and if you could highlight other software businesses that are growing a little bit more slowly or ultimately, when does ARR get back to double digits?

So -- and I'll make a couple of comments, but since Plex and Fiix and the software is also software and control, Matheus, I'm sure, will have some comments because he's been busy there. So the annual recurring revenue that grew 7% in the quarter is a mix of software and high-value services. Some of those services are things like cybersecurity contracts, others are tech support so that people who use our products and our software can call or chat or use self-help to make sure their systems are well supported.

The software in the first quarter actually grew higher than that average. So there were some delays in service contracts, renewals and things like that, that took that number down a little bit, but the software piece, including and importantly, Plex was actually higher than that figure. And I think in addition to some of the continued technology development for Plex. We're also seeing some, let's say, tweaks in the go-to-market that are bearing some early fruit. And Matheus has worked closely with our sales leadership to make sure that we're doing a really good job of representing that, looking for opportunities to build on customers that have a traditional base of Rockwell hardware and controllers, but also because Plex works just fine, even when there's a competitive system underneath it to build that motion as well.

And that's a really important part of the overall approach, the philosophy behind the acquisition of Plex in the first place is to recognize there's a big wide world out there. And while we like being able to have a landing spot for the data that's born on our devices, we also like having a way in the door to customers that might use competitive control systems but are either already using Plex or are interested in Plex because our competitors don't have an answer for it, and so it's another way to win.

Absolutely. Plex had a very strong first quarter. It was our highest quarter in terms of new bookings on record. We are very focused on new bookings, meaning new logos and expansion bookings in existing accounts. Plex is a platform that is exposed to an amount of data that no other company has the benefit of extracting from. So there are literally billions of transactions that flow through Plex every day, trillions across the spectrum of a year across thousands of plants and that creates a moat that is very difficult to replicate by others. It gives us a very strong advantage.

So -- and in terms of the go-to-market, we are looking for ways to amplify, including the development of partners that not only deploy the system but also help us sell the system domestic and internationally as well.

So Matheus, I'm going to tell you, we're very lucky to have you because over the last couple of weeks, obviously, there's been a little bit more questions on software, as you know, and so maybe you can talk about that, right? The potential for AI models to disrupt your business, like let's just ask it, right? Rock, as you know, has a very strong hardware product, you integrate most of your software into the hardware. We just talked about Plex it can sit by itself, right? So first, have you experienced, have you seen anybody new AI players out there? And how do you position -- I mean you talked about mode already, but how do you position because like the market is saying, oh, there might be disruption. So maybe we can just hit that head on.

Yes. So first, I would start, Andy, by saying that we're always evaluating. And we will always be evaluating what can potentially impact our business. It's part of our planning process, and it's forever journey. So there's never a dull moment. But specifically to the point you make on AI, I think there's a few things we would offer. So first, when you look at our software business, a good amount of that business is deeply integrated with physical systems with the embedded systems. And there are many reasons for that, including things like cybersecurity, how we control and how we manage what runs in these devices. So a good example of that is software that's used to commission a Logix system or a software that's used to commission operator interfaces.

So for those we have -- because of the relationship with these systems and the proprietary nature of these systems, we have fairly strong grounds there. Then if you think about, another point I would make is a lot of the software that we have, it's actually running production. It's mission-critical software, deterministic transactions where you're looking for consistency. You're not looking for probabilistic outcomes and the majority of what the software is doing. So software that's used to in life sciences. Software that's used in food and beverage, in regulated industries where compliance matters. So a lot of that does require the execution because it's mission-critical, and it cannot live in a probabilistic environment.

And then the third piece that I would offer is if you think about it, if your software is just data and a presentation or our user interface layer, you're very likely to be disrupted. What happens is a lot of our software has a very rich context that's not available in the public domain for all of these models to be trained on. So you see things like, for example, Anthropic focusing on coding or you see OpenAI focusing on creativity, you see Google focusing on large context and multi-motor interactions, it's very unlikely that we'll see that being prioritized, given the complexity of the market and frankly, the size of that market there. But we'll continue to work through all of these and adjust as needed.

Yes. If I can add, as Matheus started, we're always looking to challenge our hypothesis. What are the things that we knew to be true a few years ago and has anything changed to change our position on that in the day. There is a point where looking at applications in the cloud was something that we looked at and we'll continue to test this, but something that gives me encouragement is the amount of domain expertise that we have internally, people familiar, of course, with Rockwell's mission to look for efficiency from whatever means, including AI, but who also have history applying our technology at end customers.

Our Chief Information Officer, deployed dozens of MES systems at large customers around the world. He's also currently in charge of looking at expanding our AI effort for internal productivity. And so we talk closely with him just makes sense. Are there still things, as Matheus described, about a unique value from these applications that will incorporate AI within it but still have a unique value, and it's a very affirmative answer in that respect.

The only maybe a point I would also add is, if you think about automation is about to benefit from AI. And the demand for automation is bound to increase and largely because AI simplifies what it takes to consume automation technology and frankly, allows us to automate things that were not previously practical, to be automated. So we expect the demand for automation to continue to expand as more and more AI is used in production system.

That's helpful, Matheus. So we're going to open it up to the audience in a second. Let me ask one more question, but just preparing in case anybody wants to ask a question. So let me just ask on pricing, Blake. I think maybe pricing is a little misunderstood for you guys because you only report half the product-based business in terms of pricing. So when you say 1% really 2% on products. But with all that being said, I think you've come a long way in your pricing evolution over the last few years. So maybe you can talk about that. And do you -- my understanding is in the past, maybe you offered some discounts to your large good customers? Are you kind of closing those loopholes? Like how do you think about pricing sort of moving forward?

Sure. So we had a system that yielded good price for many, many years. But we found particularly during the supply chain shortages back 2021, '22, that for significant step-change disruptions, we needed to make some changes in our processes. In the past, when we had 10 years ago when we had price changes, we'd have to wait for the contracts, the annual contracts with our customers to expire. And so you weren't able to get price into the market as fast as you needed to in the face of those major changes.

We've changed that process so that you get more or less immediate price realization when you introduce those prices, working closely, of course, with our channel partners. And then also in the special case, which is becoming maybe a little bit more of the general case with respect to tariffs, again, processes that allow us to have a very transparent approach to increasing pricing. As you said, we report the price that's attributable to our products, which is still a little bit more than half of our total business, we're getting price in our software renewals and in our engineered to order or configured order offerings from life cycle services or from that portion of intelligent devices, but that's just a natural part of the quotation process. So there's price that's coming out there, but you're correct in that the pricing that we talk about, if you just look at the percentage of our products is a little bit higher than we say. I think there's a discipline of that.

There's also other aspects of pricing. So we've talked a lot over the last year or so about the long tail of our SKUs and the opportunity for some surgical pricing there items that are, let's say, more receptive to that. And so that's additional price as part of our comprehensive productivity programs. I think the overall organization recognizes that for a company that's differentiated like us, that's growing, that pricing is a vibrant part of the overall effort to continue to grow top line, of course, but also to be able to appropriately expand our margins.

That's helpful. Any questions from the audience? Anyone?

Thanks for making the time. I just had a quick one. So I think back at the end of 2024, you announced a partnership with NVIDIA on your Emulate3D to integrate Omniverse for a digital twin. We saw this year at CES, Siemens took the stage they announced what seemed like a much deeper collaboration to develop what they call the AI software for industrial automation. I just wanted to understand like how does your offering differ to their accelerator offering? Why is it that the collaboration seems to be much deeper with Siemens did NVIDIA pick them over you? Or yes, I just wanted to understand the positioning there.

No, we continue to work well with NVIDIA. I think our partners ecosystem, whether it's NVIDIA or Microsoft or the really hundreds of other technology partners is second to none. Siemens focus is a little bit more on the product design. So when you look at PLM, EDA applications, compute-intensive and I think that's why NVIDIA is particularly interested there because these are large requirements for compute in the product design. Obviously, we compete with Siemens and others in the factory design, but our Emulate3D product, which, as you said, uses an API to be able to have photorealistic images rendered in Omniverse.

We're doing that with a lot of customers. It's a growing motion directly versus the competitors like Siemens and winning in an impressive number of cases. Maybe talk a little bit more about Emulate3D and how it fits into that overall vision of a software-defined architecture.

Yes. Emulate3D is a very important component of a software-defined system because it's where you train the system and a lot of the future workflows on how systems are commissioned in the future rely on the digital twin model and the validations through that. Our partnerships with Emulate3D, are strong with NVIDIA, but they go well beyond NVIDIA. We partner with people like ANSYS, for example, for very specific capabilities that are needed in fluid dynamics and so on. Our relationship with NVIDIA is also beyond Omniverse.

As you probably heard us in our Investor Day, we have been collaborating strongly on the deployment of small language models as part of runtime systems for optimization of some production problems. And because our stack is in the cloud, and we have access to compute and services, we've been able to kind of go to market fairly quickly with capabilities like that.

Any other questions?

Sorry, could I just follow up on that? Over in Europe, like there's been a bit of a cuff in the market because one of the elevator company, Schindler said that they had made their own digital twin of an elevator because Dassault Systemes, their previous digital twin partner for 8 years was unable to do so. This seems a bit like hyperbole, like I don't know about you, elevator doesn't seem like that complicated of a product. I'm sure Dassault could probably do a digital win.

I just wanted to understand like, is this at all something that you've heard or that you think -- are customers pushing back against you saying like we're paying for per seat pricing. Do you think that that's necessarily fair, like you guys should see your costs come down of developing software because you can now use AI to do so? How do those conversations work? What does the pricing look like? Is it still going to be a per seat model in the future if it is? And yes, I just wanted to get your thoughts on that.

So I'm not sure I caught all of that. But if the question is about adoption of digital twins.

Yes, let me just clarify it. Basically, Dassault got dropped as a digital twin partner and Schindler, the Lyft company said they're making their own. They literally said they're [ vibe ] coding their own digital twin. Could a customer come to you and say that? Probably not because you guys do complicate work for them. But I imagine the pricing conversation has a little bit more flex these days because you should be seeing software development costs come down if you use AI in a reasonable way. How does that look? Is it still going to be a per-seat pricing model in the future?

Yes. So I'll make a couple of comments, and hopefully, this gets at the heart of it. I mean we are seeing significant interest across almost every vertical that we serve in creating digital twins of their operations. In a lot of cases, that was used to accelerate and shorten the commissioning process. It really got a booster and COVID when you couldn't have people physically from the machine builder and the customer and the technology supplier all physically in the same place, but it's moving beyond just the commissioning event so that customers can get benefit by continuing to debottleneck their processes to test or gamify different configurations whether it's elevators or its bottling facilities to be able to do that.

And we've taken an open approach to this. When we made the acquisition that really got us big time into this area, first with Emulate3D as the technology and then Calypso followed by Knowledge lens with people who were data scientists, who can have those conversations with customers, we recognized it wasn't always going to be applied into shops that had just Rockwell hardware. So we've got those abilities to create digital twins when there's [indiscernible] robots and Siemens controllers and so on Schneider in that because we recognize it is a multi-vendor world. But to be able to come in and to be able to compete head-to-head with those solutions providers as well as the consultants, because it still requires the -- not only the technology tools, but the domain expertise. We were told over and over by customers that the technologies we talk about, software-defined automation, including AI, integrated robotics they still have to be directed by somebody who knows what you're actually trying to produce and how manufacturing works, and that's Rockwell's differentiator.

So yes, with competition that software pricing will come down, the key piece, the part that's going to save the money and make -- give you the ROI is having an adequate tool but somebody who knows what they're doing with it and can work well not only with the corporate engineering resource, but also where it gets deployed in the field. And I think that's our special place.

Any other questions? All right. Well, we're quickly running out of time, Blake. So let me just ask you a couple more questions about the market. Like, maybe just let's go to growth by region because what's interesting is you've talked about North America being strong, but you've seen EMEA and Asia Pacific turn positive over the last few quarters. So does that continue? And then you usually are strong in Latin America, but it's been a little weak lately. So I mean, is that mining related and come back or something that? Any comments?

So Asia after North America in terms of growth, good growth. India, Southeast Asia, Taiwan, obviously, with all the chip activity, we have some very strong customers there. Latin America, a little weaker, primarily due to Mexico, Brazil, comparatively stronger. They also had a tough comp and that a year ago first quarter, they were the one region that had growth.

Got it. And then Matheus, like one of the keys, I think, for margin for Rockwell is your segment. It is the highest margin segment, right? So you got this question on pricing, but it seems like you've been focused on execution. Margins have come back up again here. Logix is doing well. So what gets you to sort of that 34% margin versus the concerns out there that all of a sudden, you're going to lose pricing and margin? Like how do you think about that?

Yes. As you know, it's a combination of volume as well as productivity remains a priority for our segment and for our company. So on the volume piece, this segment has strong incrementals, and we see a strong pipeline of innovation that will continue to help us propel that on the productivity side, all the things that Blake talked about, they are as applicable to the company as they are to the very specific segment of software control. So things like what we're doing to improve our cost to produce use Rockwell on Rockwell to continue to improve what it takes to make it, logistics, indirect, direct material -- all of the work we're engaged in right now with insourcing, those are real opportunities for software and control that we'll continue to expand on and help us drive improvement.

We talked about in Singapore, which is primarily a software and controlled plant, 30% improvement in labor efficiency there. We're applying a lot of the same things, the rock on rock concept in Twinsburg, well ahead of when we have the new plant up and running that we announced in Southeastern Wisconsin.

Would you guys say you're like kind of halfway through third inning, seventh inning, like in terms of if we're improving productivity at something like software?

This is a game that never ends. And I'd say we're still early innings. We came out to a good start to hundreds of millions of dollars over the last couple of years in productivity. We're driving it into a repeatable process as part of our Rockwell operating model, but it never ends and to be able to offset inflation plus some is an expectation every year.

And I just want to ask you specifically about discrete markets real quickly in the sense that auto is doing fine for you now, I think, like mid-single-digit growth overall. Can you continue to broaden out? You bought Cubic for data centers, you continue to broaden out that business to drive more discrete growth? Because people think of you use auto, but they are so much more than that.

Yes. Well, also in discrete e-commerce, warehouse automation, which includes a little bit of data center, a 60%, 70% growth. So that's helping discrete as well, specifically within data centers, the main areas of our business are the power distribution, largely due to the Cubic acquisition made a couple of years ago and the growing trend of people moving to industrial logic equipment like logic from their traditional distributed digital control, the DDC control that was used for a long time there, and we're seeing wider adoption by the month in using Logix there. So those are probably the primary applications and use of DDC moving to Logic in the building management systems primarily.

Yes. Hybrid market is pretty solid. Food and beverage, it's more your sort of total solutions that's sort of driven business, right?

Yes. Again, modernizations going into existing facilities that may or may not already have Rockwell control systems, adding software, adding fixed, predictive maintenance systems, adding cybersecurity contracts those are large projects, adding AMRs. We're seeing some projects. There's a recent one in Home and Personal Care, where over $20 million total project with 2/3 of that coming initially from the mobile robots. So it's having -- it's making an impact.

Just last quick question. I have asked you this for the last 5 years, so it's a good time,sir. So what are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? Are there any emerging industry trends that are perhaps being overlooked in the current disclose?

So I'll give you 2 that we've talked about a little more recently and then one that hasn't changed. So software-defined automation and Matheus is really spearheading that integrated robotics simplifying the overall automation project. And then something that I talked about, not 5 years ago, but almost 10 years ago, when I came into this role about the combination of understanding a customer's problems.

The domain expertise still matters, combining the technology and its traditional sources of technology, along with new ways to win and simplification of a customer's automation project, the design, the commissioning, the operation. And I really think that simplification is going to sort out the winners and the losers over the next 10 years. I talked about that over 9 years ago, and I think it's still as relevant today as it was then.

Thanks, Blake and Matheus.

Thank you for 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 Aijana Zellner, Head of Investor Relations and Market Strategy. Ms. Aijana, please go ahead.

Thank you, Julianne. Good morning, and thank you for joining us for Rockwell Automation's First Quarter Fiscal 2026 Earnings Release Conference Call. With me today is Blake Moret, our Chairman and CEO; and Christian Rothe, our CFO. .

Our results were released earlier this morning, and the press recent charts are available on our website. These materials as well as our remarks today will reference non-GAAP measures. Reconciliations of these non-GAAP measures are included in both the press recent charts. A replay of today's webcast and a transcript of our prepared remarks will be available on our website at the conclusion of today's call. Before we begin, please note that our comments today include forward-looking statements regarding the expected future results of our company. Our actual results may differ materially due to a wide range of risks and uncertainties described in our earnings release and SEC filings.

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

Thanks, Aijana, and good morning, everyone. Before we get into the specific results, I'll start with a few opening comments. We entered fiscal 2026 with a focus on delivering solid top line performance while continuing to increase productivity and expand margins. This quarter reflects additional progress on these fundamental objectives with sales, margin and earnings all exceeding our expectations. .

Demand across our core offerings and verticals remained healthy in the first quarter, and our teams executed well. We had double-digit sales growth and sustained momentum in our key product and software businesses. At the same time, we continue to advance structural productivity actions. These efforts span projects and commercial spend, direct material and supply chain efficiency with broad adoption of AI providing additional opportunities, we are well positioned to expand margins as the year progresses.

The macro environment remains fluid, with heightened geopolitical uncertainty around trade, regional conflict and supply chain risk. While these factors add complexity, they reinforce the importance of the disciplined execution focused mindset our teams bring every day. And the long-term trends driving automation and digital transformation remains strong. Rockwell is well positioned to lead as customers accelerate their factory of the future initiatives and move towards more autonomous operations. The strong growth of orders related specifically to projects adding new U.S. production capacity gives us confidence that the combination of our traditional sources of value with digital services, edge computing and cloud-native software is differentiated. We are the most used technology in American manufacturing.

Let's now turn to our first quarter results on Slide 3. Our Q1 sales came in slightly better than expected, with double-digit year-over-year growth in both reported and organic sales. While large CapEx investments are still on hold for many customers Demand for our products portfolio remains strong, particularly in logic and motion. Customers continue to modernize their operations even as they look from a stable market signals. Annual recurring revenue grew 7% in the quarter and was in line with our expectations with strong performance in our recurring software across automotive, life sciences and energy verticals. Plex delivered its strongest quarter yet with several significant customer wins.

One notable win was with RH Shepherd, a U.S.-based Tier 1 commercial vehicle supplier who will use our cloud-native Plex platform to drive greater operational control, continuous process improvement and scalable future expansion. Another standout win in our recurring services was with Hindalco Industries, a global leader in aluminum and copper production, and [indiscernible] has chosen to partner with Rockwell to implement OT cybersecurity across 6 plants in India.

Moving to our business segment performance for the quarter. Intelligent Devices delivered another solid quarter with organic sales up 16% year-over-year and in line with our expectations. Growth was broad-based with especially strong performance in drives and Motion. Within Motion, we secured several strategic wins across food and beverage, CPG and entertainment. A standout Q1 win here was with PFM Group, a leading Italian packaging OEM and supporting a large food and beverage customers CapEx expansion. The customer selected our independent car technology to deliver high-speed flexible production at scale across multiple key facilities. Another example of our differentiated production logistics offering is our win with ATS.

This customer is deploying our auto AMRs to deliver an autonomous material movement solution for an end user in the U.S. Margins also continued to improve year-over-year in the Intelligent Devices segment. In Software & Control, organic sales grew 17% versus prior year, ahead of our expectations. Logix continued its strong momentum with North American sales up over 25% year-over-year. Our new L9 controller is off to a great start with early adopters seeing clear benefits from higher performance, simplified architecture and faster data throughput. Beyond hardware, we are seeing growing adoption of our next-generation software offerings customers continue to expand their use of emulate 3D to create digital twins and we are seeing building momentum with the copilot functionality of our FactoryTalk design studio. This quarter, Thermo Fisher selected Rockwell to deliver an AI-enabled troubleshooting agent to accelerate issue resolution and reduce downtime, a great proof point of how our AI strategy is delivering real customer value. You heard directly at Investor Day in November about how Rockwell is broadly contributing to this important customer's success.

Life Cycle Services organic sales declined 6% versus prior year, largely in line with expectations. Book-to-bill in this segment was 1.16. As in prior quarters, customers continued to delay and narrow the scope of larger projects until there is more clarity on potential trade policy impacts. Our plans to end the [indiscernible] joint venture are on track for an April 1 close with the return of the profitable process automation business to full Rockwell control. We continue to work well with SLB through this transition, and we look forward to updating you once the transaction is complete. Total company segment margin was 20.7% and and adjusted EPS was $2.75.

These both exceeded our expectations and were driven by higher volume, favorable mix and strong productivity. Tariffs did not have a meaningful impact on our total company earnings in Q1. Christian will talk more about TRPs and the fiscal '26 impact in a few moments. Turning to Slide 4 for key highlights of our Q1 industry performance. Our discrete sales were up low double digits year-over-year, led by continued strength in e-commerce and warehouse automation. Within discrete, automotive sales grew mid-single digits, consistent with our outlook. Although the CapEx environment remains subdued, brand owners and Tier 1s are continuing to advance MES digital twin and AI-enabled modernization across their global manufacturing footprints.

E-commerce and warehouse automation sales grew over 60% in the quarter. led by strong year-over-year growth in North America. Customer investment continues to be driven by labor shortages, network modernization needs and increasing focus on sustainability and cybersecurity. Business related to data centers, again contributed strong double-digit growth in the quarter. AI-driven power constraints are accelerating hyperscaler and colo adoption of gas-powered micro grids, driving increased demand for our industrial grade controls in power and advanced cooling.

This is deepening our engagement with leading power and process OEMs and driving continued momentum in this end market. Moving to hybrid. Sales in this industry segment were up high single digits, led by double-digit growth in food and beverage and home and personal care. Consistent with what we saw last quarter, customers in food and beverage and the broader CPG sector continue to focus on operational efficiency. While the majority of our business here is driven by brownfield modernizations and productivity, we did see some greenfield projects across the U.S., Eastern Europe, Southeast Asia and India. One example of orders resulting from new capacity being built in the U.S. is our Q1 win with [ Cama ], an Italian packaging OEM at selected Rockwell's advanced motion platform to run complex high-speed operations with emerging sustainable materials.

This gives Comma a clear advantage in throughput reliability and flexible changeovers as the industry accelerated its shift to a sustainable and highly robotized packaging. Sales in Life Sciences declined low single digits year-over-year driven by several project delays in North America. Despite these temporary pushouts, our pipeline continues to expand across strategic areas, including GLP-1, radio pharma and med devices. We continue to expect growth in Life Sciences for the full year. Turning to Process Industries. Sales in this segment were up 10% versus prior year, with strong growth in chemicals, water and energy. Our chemicals business is in the specialty chemicals sector, which remains relatively resilient. We also continue to gain share at key customers with our plant PAX control platform.

This quarter, Corteva Agriscience completed the modernization of its iPark infrastructure, using our process control and networking capabilities to improve operator visibility and reduce downtime across critical chemical utilities. Within energy, we saw good activity in oil and gas, power and renewables supported by an important greenfield win with FS Bioenergia, a leading Brazilian corn ethanol producer with strategic emphasis on carbon capture and decarbonization.

The customer will be deploying our full suite of automation offerings to build their next facility in Brazil and for their carbon capture and storage project. Let's move to Slide 5 and our Q1 organic regional sales. As expected, North America remains our strongest region. At our Automation Fair in November, we announced plans for our new manufacturing facility in Southeastern Wisconsin, and I'm pleased to share that this factory of the future will be located in New Berlin. Additionally, as we have completed the purchase of our Mequon, Wisconsin facility, which we previously leased. These 2 projects are aligned with our announced investments in our plants, talent and digital infrastructure and underscore our commitment to and confidence in the U.S. market. Let's move to Slide 6 to review our fiscal 2026 outlook.

We are maintaining our organic sales growth outlook of 2% to 6%, with the midpoint assuming a gradual sequential improvement through the year. We will need to see some additional evidence of accelerating capital spend across additional verticals to move higher in our full year outlook. Additional recurring revenue remains on track for high single-digit growth. We continue to expect full year segment margin expansion of over 100 basis points. Given some discrete tax benefits in Q1, we're increasing the midpoint of our adjusted EPS to $11.80. Christian will cover this in more detail in a few moments. Free cash flow conversion is still expected to be approximately 100%.

And I'll now turn it over to Christian for more detail on our Q1 results and our fiscal 2016 outlook. Christian?

Thank you, Blake, and good morning, everyone. Turning to our financial results. Let's go to Slide 7, first quarter key financial information. First quarter reported sales were up 12% versus prior year, about 2 points of growth came from currency. Three points of organic growth came from price with about half coming from underlying price realization and half from tariff-based pricing. Some of the details I'll reference are not shown on this slide and can be found on Page 9 of our press release. .

Gross margins expanded year-over-year, driven by positive price cost and productivity and favorable mix. SG&A spend was flat year-over-year in the first quarter, reflecting strong cost discipline and productivity across our global teams. Engineering and development spend, a new metric we started sharing last quarter was up 10% year-over-year and in line with our organic sales growth, keeping our innovation spend at about 8% of sales.

Our gross margin expansion and SG&A leverage drove solid flow-through, resulting in 360 basis points of segment margin expansion. As Blake mentioned earlier, the impact of tariffs on our first quarter earnings was neutral, but it was a drag of about 30 basis points on segment margins year-over-year. While this quarter represents our easiest comparable of the year, I'm pleased with the strong performance up and down the P&L and across our segments. Q1 adjusted EPS of $2.75 was above our expectations.

As Blake mentioned, we also got some help from our tax rate in the quarter. The adjusted effective tax rate for the first quarter was about 17% and slightly lower than last year. The first quarter tax rate was lower than the 20% we expected due to discrete tax items, primarily the tax benefit of stock option exercises. This contributed to about $0.09 of our adjusted EPS compared to our Q1 guide. With the tax rate coming in lower than expected in Q1, we now anticipate an ETR of about 19.5% for the full year, better than our prior guide of 20%. Free cash flow in Q1 of $170 million was generally in line with our expectations. It was $123 million lower than the prior year, primarily due to changes in working capital and incentive comp payments in Q1 of fiscal 2026. We had 0 incentive comp payments last year. Slide 8 provides the sales and margin performance overview of our 3 operating segments. Intelligent Devices margin of 17.3% increased by 240 basis points year-over-year due to higher sales and price cost and productivity with a slight offset from FX and compensation, resulting in incrementals in the low 30s. Software and control margin of 31.2% was up 610 basis points versus prior year and higher than our expectations, driven by strong sales volume, particularly in Logix, partially offset by compensation. This segment saw year-over-year incrementals in the low 60s. Life cycle services margin of 14.1% and was up 160 basis points year-over-year, better than our expectations as the team executed well against their projects and continue to drive productivity. This was despite a revenue decline year-over-year.

Overall, for Rockwell, the incremental margin on the year-over-year sales growth was about 50% in Q1, a solid start to the year. A couple of other data points regarding Q1. First, our balance sheet as of December 31 does reflect some Sensia dissolution items. We have now classified certain Sensia assets and liabilities as held for sale. These are assets and liabilities that will go to SLB in the final closing. There's also a tax gain on the GAAP P&L related to the Sensia dissolution, stemming from a recapture of tax losses that will be usable to Rockwell post dissolution. Like all nonoperating adjustments related to the dissolution of Sensia, these are removed from our adjusted ES for reporting purposes.

Second, Blake mentioned that we purchased our facility in Mequon, Wisconsin. That transaction closed in the second quarter at a value of about $60 million. Because it is recorded on our December balance sheet as a finance lease, the transaction will be accounted for in finance and cash flows and is excluded from our operating CapEx. Let's move to the next slide, 9, for the adjusted EPS walk from Q1 fiscal 2025 to Q1 fiscal 2026. This is a more streamlined waterfall than what we have shown in the past as we transition our cost reduction and margin expansion actions into our ongoing productivity now embedded within core. Year-over-year, core performance had a $1 impact on Q1. Volume drove about half of that impact with intelligent devices and software and control sales up mid- to high teens year-over-year.

Productivity was the next largest driver. Price and mix were also solid contributors, but we did see some inflationary costs partially offset these benefits. Our strong Q1 performance resulted in $0.10 of year-over-year increase in compensation spend. All other items had a neutral impact on adjusted EPS. Moving on to the next slide, 10, to discuss our guidance for the full year. Blake mentioned ongoing uncertainties in the broader environment. Between that and being only 1 quarter into the year, we aren't seeing enough to change our sales and margin guide right now. We are updating our adjusted EPS guidance by raising the lower end of the range to $11.40, which increases the midpoint by $0.10 to $11.80. This reflects discrete tax benefits that came in better than expected in Q1 and and we are rolling that outperformance into our full year adjusted EPS. As a reminder, our guidance does not include the impact from the anticipated Sensia dissolution, which we expect to close on April 1. We still expect no significant impact on adjusted EPS, an annualized reduction in sales of approximately $250 million and an annualized improvement of approximately 50 basis points for total company segment margin. We will provide an update once the transaction closes. We continue to expect 2 points of total price for fiscal 2026 with 1 point coming from underlying price and 1 point from tariff-based price. We continue to expect our full year 2026 incremental margins to be about 40%, inclusive of tariff-based pricing. And for your models, CapEx for 2026 remains targeted at about 3% of sales. Now let me share some additional color on our outlook for the second quarter. In Q2, we expect overall company sales to be slightly up sequentially. From a total segment operating margin perspective, we are also looking for modest sequential improvement each quarter this year. Given the solid start to the year, that sequential margin expansion is going to be in the tens of basis points, not the hundreds of basis points. On a year-over-year basis, this implies mid-single-digit sales growth in the second quarter with margin expansion of less than 100 basis points.

At the total company level, we expect second quarter adjusted EPS to grow low single digits sequentially. That outlook includes about $0.10 of sequential headwind from the tax rate as we move from about 17% in Q1 to approximately 20% in Q2. Our outlook by segment included in our full year guide for fiscal 2026 remains unchanged. A few additional comments on the fiscal 2026 guidance for your models. Corporate and other expense is expected to be about $105 million. Net interest expense for fiscal 2026 and is expected to be about $115 million. We're assuming average diluted shares outstanding of about 112.7 million shares, and we are targeting approximately $500 million of shares repurchased during the year. With that, I'll turn it back to Blake for some closing remarks before we start Q&A. Blake?

Thanks, Christian. As we've said, trade volatility and geopolitical tensions continue to suppress some capital spending. I've been very proud of Team Rockwell's resilience and agility as we navigate this environment, including the efforts of our employees and partners around the world. It's a little work on the part of thousands of people but the success of our efforts was on full display at our automation fair in November. I've been to a lot of these, but the breadth of our portfolio and the enthusiasm of our people has never been more vibrant. We're building on this strength to grow share and expand margins near term and for years to come. Aijana will now begin the Q&A session. .

Thanks, Blake. [Operator Instructions]

[Operator Instructions] Our first question comes from Scott Davis from Melius Research.

Blake, I just wanted to kind of reconcile your kind of more cautious comments with perhaps what we're seeing across the S&P is CapEx budgets being inched a little higher, not lower, but you're a little closer to the customer. So like just maybe a little bit more detail. Are -- do you think people will underspend their budgets? Or are they just pushing back to the back half of the year? I mean kind of -- just a little -- take more color there would be helpful.

Sure, Scott. I think the overarching term would be prudent here. We are seeing some optimism in different areas, including the ones that contributed to a really good performance in Q1 as well as good discussions and discussion about plans, including CapEx plans in other verticals that are important to us. But we haven't seen that turn into the broad-based release of orders that we need to see before we start centering more on the higher end of that guide. So there's optimism out there. Certainly, there's some short-term indicators. We're very aware of PMI, industrial production, which we're most highly correlated to. We look at our own behavior in terms of our own investment in automation. But we just need to see a little bit more given that it's the first quarter of the year.

Understood. And how do you -- what about your distributors? I mean, I assume you're talking about the actual customer that's spending the money, not the distributor, but are distributors still a little bit cautious and not restocking yet?

So stock levels are really back to normal. So the dialogue that was front and center in 2024 and into the beginning of 2025. we're done. The inventory levels around the world are back to normal levels at distribution and at the machine builders Distributors are optimistic. When we've gone out and we've talked to them, obviously, we spent lots of time with them at Automation Fair in person. But even in the couple of months since then, there is optimism, but we're all taking a proven approach.

Our next question comes from Julian Mitchell from Barclays.

Maybe I just wondered if you could flesh out a little bit how you see the margin drivers playing out across the segments for that second quarter commentary. As you said, you're trying to sort of keep a lid on people's expectations of the sequential margin development. Maybe help us understand kind of mix impacts and anything you see with price cost from here with memory chips?

Sure. Absolutely. The -- I'll deal with the memory chip item glass. But when we're talking about the progression from Q1 to Q2 for the segments, we are, again, looking for a slight sequential improvement on the sales side. That's across all the segments. From the margin expansion side, we're looking for some modest margin expansion both for intelligent devices and software and control. When we're talking about the life cycle services business, life cycle had a better Q1 than what we were expecting.

As you know, this is a lumpy business, project execution and productivity is really important. And so keeping that at that 14% or just around 14%. [indiscernible] we're able to hold at that level, I feel pretty good about that. I think we'd all feel pretty good about that. Importantly, we do have merit that comes into play in the second quarter, so that is going to be a factor that -- when you think about those sequentials, we have to take into account. Importantly, when we talk about that year-over-year, and I mean this in my prepared comments, we are talking about mid-single-digit growth year-over-year.

On the top line, we're talking about 100 basis points or a little less than 100 basis points in segment margin expansion year-over-year for the total company. And that's a flow-through in the neighborhood of the the 35% that we've always talked about and we signed up for as an organization, keeping in mind, we just did a 50% in Q1. So all in, we're talking about a Q2 number that's in the neighborhood of about $2.85 on Again, you'll have your own modeling around that, but that's what we're targeting. When you bring up the chips factory, yes, there are some inflationary costs that come into play.

Ships are one of those factors. The organization, the supply chain team has done a really good job in positioning around that. That has impacted our inventory levels a little bit. There's some cost inflation there. We're talking single-digit millions of dollars though, in both regards. So it's not a huge impact for us. Again, the team is navigating it well. I feel really strongly that they've been right on top of these issues.

That's helpful. And maybe just clarify for us on logic kind of where you see a standing on the volume cycle perspective. How much of a decent recovery you think is left on the Logix front. And maybe tied to that, you had exceptional growth in process -- sorry, in hybrid industries in first quarter. Do you see some of that persisting through the balance of the year?

Sure. So in terms of Logix, Logix continues to be a great part of our product line. It is benefiting from good demand for existing offerings, but we also have a really robust new product introduction that's having an impact as well. both in the I-O, especially in Process IO as well as the new L9 processor, where we're seeing great adoption around the world for that.

And even some of the elements of the software-defined automation, things like Emulate3D, FactoryTalk design studio that we highlighted with Thermo Fisher. Those have been great for us in traditional verticals as well as some that you haven't thought about Rockwell as closely in association with like data centers, as more customers, hyperscalers and colo owners are looking at industrial logic i.e., Ligix to replace their traditional direct digital control systems, their DDC control systems. So we're seeing Logix, we saw really good growth in the first quarter, and we expect that to continue to be a nice spot for us top line as well as, of course, the financial benefits of that. In terms of volume, so we expect for the full year to be at or slightly above the units that we saw pre-pandemic.

Obviously, with the compounded price increases that we've seen over the last half dozen years, the volume level in dollars is considerably higher, but we do expect units to get back to for the full year, the units that we saw pre-pandemic. The other question that you had was regarding hybrid. And of course, food and beverage, double-digit growth in the first quarter, it's our biggest vertical. And so good things happen when you see double-digit growth. And food and beverage.

It's a mix of traditional offerings, the logic, the input devices, the drives, the motion, a lot of that is packaging, and we saw good development at the European packaging and material handling OEMs, including those in Germany and Italy. Life Sciences was down a little bit in the quarter, but we expect that to improve through the course of the year. We're having great success at the biggest life science customers that you know, and it's across the line. It's the hardware, it's the software, it's the high-value services. So I think we'll see continued benefit for food and beverage, life sciences, Home and Personal Care as well. We saw some really nice orders in the first quarter in Home and Personal Care. And importantly, across all of those, we're seeing a lot of interest in those auto autonomous mobile robots. So that whole idea of production and logistics that we've talked about is really capturing the imagination of customers as we integrate those technologies, AMRs, independent car technology along with the fixed automation that Rockwell has been known for, for a long time.

Our next question comes from Andy Kaplowitz from Citigroup.

So obviously, we know it's early in the year, as you said, but you did say that Q1 incrementals were up over 50%. And I think it was better than you expected. You reiterated the greater than 40%. But if logic does stay strong, as Blake kind of mentioned it was pretty strong could incrementals creep up for the year? And maybe you can update us on some of your programs like [indiscernible] and Rock and how you're dealing with dynamic pricing.?

Sure. So when -- obviously, Logix does have some really good flow-through profitability. If that changes in the mix from where we were -- where we started the year and planned for in the guide, of course, that can change the flow-through there's no doubt. But we have a number of other product categories that also have really strong flow-through as well.

Importantly, we don't -- we're not just going to rely on this kind of goes to the second part of your question. We're not just going to rely on the volume side of it. in certain product lines, right? We want to have a really broad base. We want to build a really broad-based around the business. And we also want to make sure that we're doing the right things inside of our own organization to ensure that we get great flow-through profitability, which goes to the productivity side of it. And yes, the team continues to perform well on our productivity initiatives, which we previously discussed is cost reduction and margin expansion went into a fair bit of detail during automation fair in our Investor Day around those initiatives. But again, direct material costs and really driving out some of those costs and keeping inflation in check in the COGS area specifically.

I can't underscore enough that we had good expansion on the gross margin line in Q4. We had good gross margin expansion again in Q1. I mean that's really where you're seeing -- you see it up and down the P&L. But when we're talking about what's going on in the factories, what's happening with supply chain, you're seeing it in gross margin, which is outstanding. So feel good about that. Again, we can certainly go into a lot of detail around the different initiatives. We've done that before, and I'm happy to do that. But just know that this organization has built a really good muscle strength around this. We're leaning into that muscle memory as we go through this year and we go on and operationalize the work that we've done over the last 21 months.

And just to add, you asked about rock on rock. I mean, we talked at Investor Day in November about what we're seeing in terms of benefits labor efficiency, time to competency, reduced energy usage at our Singapore facility. And we're actively taking those learnings and best practices and rolling those into other existing facilities around the world, especially [indiscernible], which is a pretty important plan for us. So while a lot has been made of the new greenfield that we're building here in Southeastern Wisconsin. We're working already to make the investments in talent and digital infrastructure, technology in our existing facilities to be able to take advantage of those efficiencies that will come out of those improved workflows. And that's really the essence of that rock on rock. Yes, there's going to be a lot of Rockwell technology in there, but it's about our partners, it's about the overall ecosystem contributing to the benefits that we've already seen in Singapore.

That's helpful. And then you spoke about hybrid and answering a previous question, but maybe on discrete, semiconductors were still down in Q1, but does seem like a good cross industrial semiconductors are getting better. So maybe update us on your opportunities there? And then in general, you guys have been focusing on sort of bigger solutions for customers. Can that sort of help you in addition to improved product environment in the discrete market going growth?

Sure. So start specifically with semi. Let me start by saying Q1 had a tough comp. We had a unusually strong quarter a year ago. And so that was a little bit of what contributed to the down in the quarter. As kind of a refresher, we participate in semiconductor with some of the key tooling providers, the equipment manufacturers also wafer transport is a relatively new application that we address with independent car technology, and that continues to be a good source of benefit for us. software and implementing artificial intelligence as part of solutions to help with energy management is an application that we highlighted at Automation Fair amid some pretty tough competition.

We stood out there. Cybersecurity would be another area. And then the traditional strengths of providing the environmental controls for building management for the clean room. A lot of the CapEx right now in semiconductors is concentrated on the people who are participating in the AI build-out. So I wouldn't say that it's up and down the cast of players in semiconductor to be sure, around the world I think of Taiwan, for instance. So we see some very strong investment there, as you would expect, and we're winning. But it's still a volatile environment for semiconductor, as you know, and hence our outlook for the full year.

Our next question comes from Chris Snyder from Morgan Stanley. .

I wanted to ask about market demand trends. Are you still seeing -- continuing to see positive momentum on more of the shorter cycle kind of product business that you talked to in the back half '25. And it sounds like the bigger project business remains soft. But I believe at the Investor Day, you guys talked to strong double-digit '26 order expectations for the new capacity ads piece of the business. So just are you starting to see those orders come through and they just deliver at a slower rate because they're so long cycle? Or do you kind of still think that big project order ramps on the horizon?