Rockwell Automation, Inc.

Q2 2026 Earnings Call — May 5, 2026

Analyst Scott Davis (Nelius Research): Hey, good morning, Blake and Christian and Ajana. Everything seemed pretty clear. But 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 at kind of 1% of sales. If it's 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 what that TAM may look like for your products?

Executive Blake (Title): Sure. Scott, we're real 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, you know, data center for us comes from, I'd say, three 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, logics as a natural choice for its safety and reliability, 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.

Analyst Scott Davis (Nelius Research): Okay, helpful. And then, Blake, 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. But what does that mean as it relates to kind of content intensity and differences? I mean, how meaningful is that change for Rockwell?

Executive Blake (Title): Well, you know, I'd say the modernizations, the expansions of the 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, you know, muting the lifecycle services growth. But those modernizations, those expansions, you know, lots of logics, lots of intelligent devices, and so on in those projects.

Analyst Andy Kaplowitz (Citigroup): Hey, good morning, everyone. Blake, 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 less? Maybe you can give more color to the drivers and durability of the unlock. Obviously, it looks like short cycle's gotten a bit better. We all see the improvement in the USISM, but the customer decision-making on large projects just accelerate, and why do you think that is?

Executive Blake (Title): 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, 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 midsize 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.

Analyst Andy Kaplowitz (Citigroup): Helpful, Blake. And then, Blake or Christian, obviously operating leverage is helping you, but when we look at your major segments, such as intelligent device and software control, you mentioned positive pricing and productivity is helping, and as you've said, you're now focused on averaging 50 percent incrementals in 26 versus 40 percent, I think, which was your original guide. So, I know you're focused on continuous improvement, but how much is that helping in impacting, for instance, price versus cost, and are we starting to think that core incrementals at Rockwell could be higher than your previous long-term algorithm?

Executive Blake (Title): Yeah, sure, Andy. Appreciate the question. The productivity cadence at 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. You know, 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, you know, 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 would 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.

Analyst Julian Mitchell (Barclays): Hi. Good morning. 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%. 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.

Executive Christian (Title): I think mix was a decent tailwind in the first half. Yeah, maybe I'll start with that one and Blake can jump in, but first of all, to confirm, 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 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, you know, that's everything from the volume increase that we had sequentially that, you know, 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, you know, when you look at the incrementals we had from Q1 to Q2, that flowed through really well. So, you know, to be able to try to hold on to that and keep that, you know, 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 mixed 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, I feel comfortable with how this rolled together.

Executive Blake (Title): Yeah, just the only other things to add to that are that mixed 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 and control and intelligent devices. We're going to see a lot of new products at automation fair this year and into next year.

Analyst Julian Mitchell (Barclays): That's helpful. Thank you. 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, you know, multiples of their organic revenue growth. We just wondered on the extent of the orders increase that you've seen and any particular color on the logics platform within that, please.

Executive Christian (Title): 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 logics. We're introducing new products. We're seeing conversions in data center. So that business is doing quite well with, you know, some very exciting additional introductions planned over the coming year.

Analyst Chris Snyder (Morgan Stanley): Thank you. 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 you know it felt like over the last year the messaging was that there's a lot of interest in relocating production into the US but companies were just not pulling the trigger yet. Do you think that has flipped? And if so, why?

Executive Blake (Title): 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, you know, 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, you know, 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 are, there's still some uncertainty and volatility in the areas that I mentioned.

Executive Christian (Title): Maybe just a quick follow-up on the book develop number that Blake mentioned. So that book to bill in that range they 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 one. 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, can't overemphasize, just slightly above that corridor in the second quarter and for the first half inside that corridor.

Analyst Chris Snyder (Morgan Stanley): Thank you. 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, where are we in this 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?

Executive Blake (Title): Yeah, thanks, Chris. For sure, we never shy away from volume. Volume is extremely important, and of course we want that. But from the productivity and 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 your organization. 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 two 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, you know, 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 insourcing projects that are happening. I heard a project last week around saving on labels that were costing us less than a penny already, and they were able to save a whole bunch of cost on that. We're streamlining our builds. 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, yeah, we're 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.

Executive Christian (Title): Yeah, absolutely. And I think additional comment about where are we in this journey? You know, we've had good success, especially, you know, 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 companies operating rhythm, you know, as, you know, 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.

Analyst Quinn Fredrickson (Baird): Yes, thanks for the question. Just wondering 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 the first half and the sequential acceleration you saw this quarter. The 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?

Executive Blake (Title): So, I'll start with, I can start with some comments about discrete. You know, 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 and market force. We're seeing growth in hybrid and process as well, as we've talked about, but I'd say discrete with e-commerce and warehouse automation, data center, you know, that's a strong force right now. And 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.

Analyst Quinn Fredrickson (Baird): 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?

Executive Blake (Title): Sure. So in automotive, you know, we've seen the brand owners, you know, balance their approach. So, you know, internal combustion engines, where we have such a large installed base, you know, 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 and automotive, I think the tariffs are a big part of that. Everybody's watching USMCA as those negotiations begin, and it's especially important for the automotive companies.

Analyst Amit Mehrotra (UBS): Thanks, operator. Morning, everybody. 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, can you talk about how margins compare in that vertical versus maybe the company average?

Executive Blake (Title): Yeah, so I'll talk about four 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 in 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 logics. It's motion control for products, you know, conveyors and diverters. It's sensors from our industrial components business. So it's, you know, products that we've been known for for a long time in a vertical that's experiencing a very high sustained level of multi-year investment.

Executive Blake (Title): Regarding the margin profile, these are, keep in mind for Rockwell, our offerings are horizontal. That is, we're able to use the same products and solutions for lots of different applications. The end result is that it is a similar margin profile by offering. Now, it depends on what exactly is being given in the warehouse automation space. So really, the difference in profitability and warehouse automation for us has to do with 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.

Analyst Amit Mehrotra (UBS): Got it. Great. Thank you. And then just as a follow up, one thing I noticed is obviously more balanced growth between North America and Asia-Pac. Can you just talk about if you're seeing the international market catch up? It's primarily been kind of a North American-led 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.

Executive Blake (Title): 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, you know, largely the strength of machine builders. We saw it high single digit growth in Germany, we saw low double digit growth in Italy, you know, two of the more machine builder intensive countries for us. And that's, you know, certainly for, you know, machinery that's bound for the US, but also other parts of the world, because our portfolio is becoming more and more competitive for applications where, you know, 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, you know, we talked about semiconductor more generally, but that was a particularly strong spot there. And then in 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.

Analyst Andrew Buscalia (BNP Paribas): Hi. Good morning, everyone. A similar question on the end markets and regions. You know, I think inter-quarter, you see the geopolitics, you know, heighten, 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 shook out inter-quarter? It sounded fine, but what are your thoughts long-term in that segment?

Executive Blake (Title): Yeah, 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 logics, power control with our variable speed drives, digitization, so providing digital twins of those processes to de-bottleneck. 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. Look, there's a strong correlation between energy abundance and 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.

Analyst Andrew Buscalia (BNP Paribas): Okay, that's helpful. And I wanted to check on one other thing within software and control so you know the second set of second quarter in a row of great results and that margin of close to 35 I know you're signaling you know near term you know that's that's going to be a down but what you know, what were the biggest factors driving that performance in Q2? And is that a high watermark we likely don't see for a long time? Or is that kind of where you think that margin can shake out, you know, over the medium term?

Executive Christian (Title): Yeah. So I'll make some comments, and then Christian may have some additional thoughts on it. Look, we're very proud of the way logics is trending. We've talked about a 31% to 34% margin corridor you know in our midterm targets. We're happy to have performed above that in this quarter. Volume certainly helps productivity is helping their software in software and control, you know, a very profitable plex business for instance, certainly helped that. And as we said, ARR for software was up high single digits in the quarter. So we are, we're proud of that. We're looking to sustain high levels of margin performance in that business, of course. But we, you know, indicated some of the factors, you know, in the second half of the year. And I think we're just, we want to make sure we're being prudent about how we think about that performance.

Executive Blake (Title): Blake just highlighted a bunch of things of all conversion went really 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's real. We also have some additional engineering and development spend and other project spend. And importantly, Q2, the discipline 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 and control. Really happy for all of us in that group. But again, trying to make sure we're balanced as we think about the full year.

Executive Christian (Title): Okay, fair enough. Thank you.

Executive Blake (Title): That concludes today's conference call. Thank you for joining us today.

At this time, you may disconnect.

Thank you.

Q1 2026 Earnings Call — February 5, 2026

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. Thank you.

As a reminder, to ask a question, please press star followed by 1 on your telephone keypad.

Our first question comes from Scott Davis from Milius Research. Please go ahead. Your line is open. Hey, good morning, Blake and Christian and Ajana. Good morning. William Boschelli, A Blake I just wanted to kind of reconcile your your your kind of more cautious comments with perhaps what we're seeing across the s&p is is capex budgets being a little higher. William Boschelli, Not lower but you're a little closer to the customer, so you know. William Boschelli, Like just maybe a little bit more detail or do you think people will under spend their budgets or are they just pushing back to the back half of the year, I mean kind of you know just a little. Take more color there would be helpful. Sure, Scott. You know, I think the overarching term would be prudent here. We are seeing some optimism in different areas, including the ones that contributed to, you know, really good performance in Q1, as well as good discussions and discussion about plans, including CapEx plans and 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, you know, start centering more on the higher end of that guide.

So there's optimism out there. Certainly there's some, you know, short-term indicators. We're very aware of PMI, industrial production, which we're most highly correlated to. You know, 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 the, are distributors still a little bit cautious and not restocking yet? So stock levels are really back to normal. So the dialogue that, you know, was front and center in 2024 and into the beginning of 2025, We're done. 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, you know, even in the couple of months since then, there is optimism, but we're all taking a prudent approach. Got you. All right. I'll pass it on. Best of luck, guys. Appreciate it. Thanks, Scott.

Our next question comes from Julian Mitchell from Barclays. Please go ahead. Your line is open. Julian, you might be on mute. hi good morning sorry about that um maybe 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 um as you said you're trying to sort of keep a lid on people's expectations of the sequential um margin development uh maybe help us understand kind of mixed impacts and anything you see with price cost from here with memory chips thank you Sure, absolutely. I'll deal with the memory chip item last. But when we're talking about the progression from Q1 to Q2 for the segments, we are, again, looking for light 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 control. When we're talking about the lifecycle services business, lifecycle 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%, if we're able to hold at that level, I'd 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're thinking about those sequentials, we have to take into account. Importantly, when we talk about that year-over-year, and I mentioned 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. That's a flow-through in the neighborhood of 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, you know, we're talking about a Q2 number that's in the neighborhood of about $2.85. You know, again, you'll have to do your own modeling around that, but that's what we're targeting. When you bring up the chips factor, yeah, you know, there are some inflationary costs that come into play. Chips 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. Thank you. And maybe just clarify for us on logics, kind of where you see us standing on the volume cycle perspective, you know, how much of a decent recovery you think is left on the logics 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 logics, logics continues to be a great part of our product line. It, you know, 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 I.O., 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 Emulate 3D, Factory Talk, Design Studio that we highlighted with Thermo Fisher, those have been great for us in traditional verticals, as well as some that you know, 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. logics to replace their traditional direct digital control systems, their DDC control system. So we're seeing logics. 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, you know, 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 in food and beverage. It's a mix of traditional offerings, you know, the logics, 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. um 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 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's been known for for a long time. Thanks very much.

Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead. Your line is open. Hey, good morning, everyone. Hey. Good morning. Christian, so obviously we know it's early in the year, as you said, but you did say that Q1 incrementals were up over 50%. But I think it was better than you expected. You reiterated the greater than 40%. But if logics does stay strong, as Blake kind of mentioned, it was pretty strong in Q1. Could incrementals creep up for the year? And maybe you can update us on some of your programs like Rock on Rock and how you're doing with dynamic pricing. Sure. So obviously, Logix does have some really good flow through profitability. If that changes in the mix from 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 base 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 yeah, the team continues to perform really well on Our productivity initiatives, which we previously discussed as cost reduction and margin expansion, went into a fair bit of detail during Automation Fair and 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, you know, 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 the gross margin, which is outstanding. So feel good about that. Again, you know, 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 know, 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 Twinsburg, which is a pretty important plant for us. So while a lot's been made of the new green field that we're building here in southeastern Wisconsin, We're working already to make the investments in talent, 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. um you know the overall ecosystem contributing to the benefits that we've already seen in singapore like that's helpful then you spoke about hybrid and answering a previous question but maybe on discrete uh semiconductors we're still down in q1 but does seem like a cross-industrial, something that is getting better. So maybe update us on your opportunities there. And then in general, you guys have been focusing on, you know, sort of bigger solutions for customers. Can that sort of help you in addition to improve product environment in the discrete market going forward? Sure. So I started specifically with SEMI. Let me start by saying Q1 had a tough comp. We had an 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, you know, we participated in semiconductor with some of the key tooling providers, the equipment manufacturers. Also, weight for 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, you know, 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, you know, up and down the cast of players. in semiconductor. To be sure, around the world, you know, I think of Taiwan, for instance, you know, we see some very strong investment there, as you would expect, and we're winning. But it's still, you know, a volatile environment for semiconductor, as you know, and hence our outlook for the full year. Appreciate all the color.

Our next question comes from Chris Snyder from Morgan Stanley. Please go ahead. Your line is open. Thank you. I wanted to ask about market demand trends. Are you still continuing to see positive momentum on more of the shorter cycle kind of products business that you talked to in the back half of 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, you know, are you starting to see those orders come through and they're just, you know, deliver at a slower rate because they're so long cycle? Or do you kind of still think that big project order ramp is on the horizon? Thank you. Sure, Chris, and this will allow me to pick up a little bit of Andy's question just previously as well. We do continue to see good demand for modernizations and investment in brownfields that are probably heavier on the product side. And you see that in our results, really strong growth for our product-centric businesses and a little more subdued on the lifecycle side.

In the first quarter, we did see good development and very good year-over-year growth in new capacity. What I would hasten to mention is that that new capacity business is relatively evenly split across all of the business units. So we think of new capacity as big engineered solutions coming out of lifecycle, and while there's some of that, There's also a lot of product business, a lot of logics, a lot of drives, a lot of motion that's going to engineering firms or integrators or machine builders that's still contributing to the build out of new capacity in the U.S. So that obviously has good implications for profitability of that business and the development across all of the business areas. We're seeing it in certain verticals. So we're seeing it. in e-commerce and warehouse automation, of course. We've talked about a few green fields here and there in some of the hybrid areas. We do expect, you know, that the build-out of life sciences to contribute to positive growth for the year, but we haven't seen people, you know, letting those orders at the speed and at the breadth that would cause us to raise the organic guide for the full year. A lot of positive signals.

We just need to see it come through in orders. Thank you, Blake. I really appreciate that. And then maybe for one, to Christian on margins, because obviously the company has done an incredible job taking out costs and driving margins higher over the last year plus. When I look at the rest of the year guide, Does it include any incremental cost out opportunity? It did seem like there was still, you know, more room to run there from the investor day. And I just ask because it seems like the rest of the year is calling for even at the high end, maybe like a 35% kind of incremental, which, you know, good number, but that feels like more normalized and not maybe seeing some of the benefits of incremental cost out. Thank you. Yeah, thanks, Chris. I appreciate that. For sure, productivity remains, you know, right in the center of our plans. We've got a lot of activity that's happening around that. As I mentioned, we saw a really good performance in Q1 on the productivity side of it, which came through in that core number. Yes, volume was the biggest driver of that core, but the second place item was productivity. And that is absolutely in our plans through the remainder of this year.

Regarding the flow through incrementals, it's important to note, I mean, we're still talking about a, we're getting a lot of, Tariff-based price, tariff-based cost comes through. That, of course, when you're looking at incrementals year over year, that is going to dampen down that number. We're still, for the full year, we're looking at a 40% number, even with that headwind in there. So I think we feel pretty good about that. And ultimately, we're talking about a guide at this point. And we're one quarter in. It's a really good way to start. We want to make sure we're prudent and we're being rational about how this is going to perform through the remainder of the year. Let's get another quarter under our belt, and let's see where we're sitting after that. Thank you, Christian. Appreciate that.

Our next question comes from Steve Tusa from JP Morgan. Please go ahead. Your line is open. Hi. Good morning. Hey. Morning. Can we get a little bit of a bridge on this S&C margin? Pretty strong. What was the trend in like the software related business there in that context? Yeah, actually, uh, in software control, it was pretty broad based, um, in that, uh, it was not just, I know we'd like to talk about logic from logics is important. Uh, but we actually saw it, uh, kind of throughout all the, uh, all the categories of the business, the software side had, uh, had really good performance as well. Awesome, which is the product side of the business, had really strong performance year over year. The network side came through nicely, too. So, Blake, I don't know if you want to add any more commentary around that. Well, just I don't know that we mentioned it before, but, you know, we talked about the 7% overall ARR for the company split between software and then related services. The software ARR, particularly with Plex, was actually higher than the average. And so we saw good growth, and that's, of course, good profitable business for us.

And as Christian said, it complements nicely the hardware portions of software and control. Awesome is the open compute platforms. It's also factory talk optics. We have very competitive hardware and software offerings from that acquisition, and we're expecting a good year from them. Okay. And then just to follow up, can you just reconcile the pretty strong earnings growth and margin expansion with the cash, which was down year over year? Is there like some non-cash license earnings or something like that? Yeah, I mean, from a cash flow conversion perspective, we were always expecting free cash flow conversion to be at about this number in Q1. Two primary factors, one that was absolutely known was the incentive payouts from fiscal 25 performance happens in the first quarter of the following year. So that happened in this quarter. So it's an outsized number on that. which is a good thing. The other portion is that when we look at the year-over-year in particular, working capital was a source of cash in the first quarter of 25. In the first quarter of 26, working capital was a slight use of cash, both from the payables and the inventory perspective.

So that drove a portion of the delta there. But all in all, we feel like we're tracking just fine there. Great. Thanks for the detail. James Rattling Leafs. Sorry, just to make sure, just to follow up on that, we did not have any incentive payouts that happened in the first quarter of last year. So that's why the delta year over year again, incentive payouts happened this year, but last year there was nothing. So that goes into that year over year delta. Sorry about that.

Our next question comes from Nigel Coe from Wolf Research. Please go ahead. Your line is open. Thanks, good morning. So we've talked about hybrids, talked about discrete. Let's complete the loop with process. But you are looking for, I think, low single digit growth in process markets for the full year. 10% in the quarter, I think, plus 40% in chemicals. And we have heard stronger project orders from LNG, PowerGen, et cetera. So just curious, do you see enough bias to that? Outlook of process, number one, and then secondly, you know, chemical strength, you know, where you've seen it, and how do you feel that plays out? Yeah. So process performed nicely for us in the first quarter. As you mentioned, energy is the single biggest part of that. You know, oil and gas remains important to us. You know, about 10% of our business, even after the dissolution of the decency of joint venture. In this quarter, we actually saw, you know, meaningful contribution of midstream. So pipeline type of activity that we participate in, not just with the control systems, but also the services. Network monitoring is a good application for us.

And then the power, which is a differentiator versus some of our competitors there as well. You certainly see contribution from chemical, a really strong quarter and a little bit contrary to general dialogue around chemical. But our exposure is primarily in specialty chemical, which has been a bit more resilient than the bulk side of things. We also had in the quarter a nice set of competitive conversions. We've got, you know, a good combination of the technology as well as the expertise, and we're taking some business there. We talked about a win with Cortiva in the chemical side. And, you know, it is more of a project business, so it's a bit lumpy, but it was a good start, and we're looking forward to continuing that momentum. On the opposite side, of course, you know, oil prices are still fairly low, and so people are, you know, being ever mindful of being good stewards of their capital. And so, you know, they're paying a lot of attention to capital in the oil and gas side there. We've got some exposure to LNG, but probably not as much Right, yeah, thanks, Blake.

My follow-on, you've made it very clear that you've seen encouraging signs out there, but you want to remain cautious, which is obviously the right MO. I'm just wondering, though, have you seen any change in behavior? Obviously, we don't necessarily flip the calendar and everything is different, but it does feel like we're seeing good momentum in IP, durable goods orders. ISM had a big month in January. I'm just curious, if you think about your macro barometer, You know, Blake, is it ticking higher here, you know, relative to the last time we spoke? And I guess my real question is, are we seeing any, you know, sort of like signs of infection in orders? Yeah, I think sentiment is similar to maybe slightly up. We're most correlated over a longer period of time with industrial production. So while, you know, the Purchasing Managers Index, you know, going up, PMI is encouraging We don't bank on that. There's still a lot of volatility out there. There's new headlines every day that can affect this. Tariffs remain still not as stable as I think we would like them to be. So IP is generally constructive, but it's a little bit of a longer-term metric.

We know that that you know, in the real view mirror that won't be the exact number that's being forecast now. So, I think there's good sentiment, but again, we'd like to see the orders as more objective proof before we would move higher on the guide. Okay, so it sounds like orders are very stable. Okay, thanks, Greg. Yeah, I guess the one additional point is that, you know, the start to the second quarter is aligned with the guidance that we provided.

Our next question comes from Andrew Buscalia from BNP Paribas. Please go ahead. Your line is open. Hey, good morning, everyone. Morning. You know, so kind of one of the great ironies this quarter is you guys had a big beat on the software side. Whereas like rest of the software land is getting sort of crushed by AI concerns. So my question is twofold. Are you, I know you get this question quite a bit, but it seems as if AI is kind of at our doorstep a little bit sooner than some people anticipated. Maybe are you, are your customers or are you hearing anything regarding, you know, new competition from AI creeping in? And secondly, like, of these ai features you're introducing sound exciting i think you talked about one in process potentially more impactful to your numbers sooner than later than maybe um you would have thought six months ago yeah great question um look we uh we have uh artificial intelligence implemented at all levels of our uh architecture uh you know we've had we've helped customers uh get value from machine learning for quite some time and while a lot of the discussion you know, of recent is, you know, co-pilots, generative AI, agentic AI, which we're using for internal productivity already in our own operations. Our focus is on the impact and the efficiency and the simplification that we can provide to customers. So we're not looking at, you know, a general, you know, language model that, you know, is a sandbox for customers to play with. We want to be able to apply it for specific applications with specific productivity in mind or specific ways that we can simplify their workflows. And so you see it with implementations of vision AI to help enable pattern recognition and high-speed packaging, for instance. We see it with logics AI. You know, that's a complement to the traditional, you know, control loop of interpreting inputs and changing the state of outputs to give more efficiency with AI so that the systems actually become more performant over time. And then we see it embedded in Plex, for instance, in the demand planning module, you know, to give more accurate insight. So we're not looking, you know, to create these large, nebulous models rather than to take llms and slms to be able to provide real value for real world problems at customers where the application understanding is still really important and we are seeing some benefits already with that we certainly see in our own operations in twinsburg in singapore for instance and we're helping to apply these things for customers as well i don't see a huge uplift in brand new offerings being the most significant part of the benefit to rockwell from successfully applying this in the production environment i see the simplification of automation and digital transformation on the plant floor being the real prize that's going to help us grow share and really importantly we're not going in and saying hey rip everything that you have currently making your products out and put something new in it fortifies and complements the existing system. So it's much less disruptive, much less risky to be able to add this new capability, but with familiar products and familiar workflows. Yeah, very interesting. Okay, and maybe just one other one. Food and beverage doing quite well. What are your biggest markets? Same with automotive. I'm wondering, you're not really seeing the same trends with other companies talking about those markets. I mean, it's very mixed. Are we talking about just easy cops for you guys, or are you guys just an early indicator of improvement in those markets? What are you seeing that maybe some other companies are in those two markets? Yeah, traditionally, our participation and our strength in auto is, you know, historically kind of at the leading edge of the cycle. Food and beverage has elements of that in the In the packaging side, it also has elements of process on the upstream side that's typically a little bit later cycle historically. Yeah, I think there was some help from comps in the first quarter to be sure. As we've said, you know, Greenfields and Automotive still a little bit suppressed as they're, you know, taking the temperature of their customers. to understand what's the optimal mix of EV versus hybrid versus internal combustion engines. And they're also really importantly trying to get a good fix on their cost base for projects based on tariffs. But all that being said, we do have differentiated technology. Our major competitors don't have mobile robots and they don't have The ability, even the competitors that have mobile robots don't have the huge capabilities in fixed automation. And to bring that together has really captured the imagination of those customers, both the brand owners as well as the tier suppliers. And then our software tools, Emulate 3D, Logix Echo, Factory Talk Design Studio are second to none in terms of being able to help these customers bring together the worlds of traditional automation w