Q3 2026 Earnings Call — August 4, 2026
Management: Thanks, Blake. We'd 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.
Analyst Scott Davis (Milius Research): Thank you. 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 one point of price positive. Now you're talking about getting, I think, another one and then another one and a half 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 off? Kind of how mechanically do you guys manage this?
Executive Christian: Yeah, sure, Scott. I appreciate the question. So we typically give a view on price for the full year at the outset of 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 was 1%. And underlying price was close to nil. 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 were 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 talked about this message before, but tariff-based pricing is really there to create EPS neutrality around tariff-based costs. and so that's the, it's not really all that incremental as far as the conversion goes. So just wanted to note that for you.
Analyst Scott Davis (Milius Research): Yeah, no, that clears it up. And just quickly on Plex, I haven't heard you mention Plex in a while. Where are we on the deal model on that asset and how are you guys feeling about it?
Executive Christian: Yeah, 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 hypotheses 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 the Gentic AI throughout in various of the modules work and this is especially exciting to me personally work to integrate Plex and you know the 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. Good update. Thank you, guys. Best of luck.
Management: Thanks, Scott.
Analyst Andrew Obin (Bank of America): Yes, good morning. Just maybe a broader, bigger picture question on inflation and pricing. As you look over the next six 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.
Executive Christian: Yeah, Andrew, it's a good question. And for sure, inflation is a dynamic environment right now. You know, it started with memory earlier this fiscal year for us, and it's continued to expand. Data center is 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 number one 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. ==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 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, negotiation 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.
Executive Christian: Andrew, you asked structurally about what are we doing. 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, you know, pricing for products largely goes through distribution. So moving to a fixed discount methodology for faster realization of price, more frequent price changes where 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. Thank you.
Analyst Andrew Obin (Bank of America): 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? Thank you.
Executive Christian: Sure. Yeah, 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 green lighting some of these projects. In certain cases, funding constraints. That was a specific issue with Capital Projects and LATAM that we saw. So, you know, 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. You know, some of the root cause goes back to which industries are deploying capital and which are staying 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. Thank you.
Management: Yep. Thanks, Andrew.
Analyst Andy Kaplowitz (Citigroup): Hey, good morning, everyone. Baker Christian, last quarter you mentioned that book to bill was a bit over your normal range. Was that still the case in Q3, Andrew, or would you say that you have more backlog covers 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 and then prove what you're seeing in those markets.
Executive Christian: Yeah, so on the book-to-bill question, we called it out last quarter because it was just slightly above our normal corridor. That number we called out was for the first half we were expecting it to be back inside the corridor. In fact, for the first half it was inside the corridor and then we were expecting for the remainder of the year it 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 all in all, the book to bill is in good shape.
Executive Christian: Yeah. 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 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 standardizations on Rockwell's architecture that pretty exciting. And these are around the world as well. In life sciences, you know, we've talked about that as a multi-year trend. Obviously, there, you know, some specific marquee programs such as rollout of GLP-1 drugs, oral solid dose variants 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 talk 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.
Analyst Andy Kaplowitz (Citigroup): 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 logics. And, you know, overall, like you've been very focused on the penetration into e-commerce. So maybe talk to us about, you know, obviously you raised the estimates for the end markets, but how much of this is Rockwell penetrating as the end markets continue to be strong?
Executive Christian: Yeah, I think you can look at, you know, additional share growth into data center applications on top of a continually strong growing fundamental in terms of overall data center opportunities. To recap, three 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 with the chiller manufacturers in terms of power controls. 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, you know, 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 controller 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. Appreciate all the color, guys.
Analyst Chris Snyder (Morgan Stanley): Thank you. So I was following up on some of the commentary earlier that larger scale capital projects remain sluggish. 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, is when you look at how the orders have developed or customer conversations into 27, how do you see these two 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. Thank you.
Executive Christian: 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, you know, that we're at a specific point in the traditional cycle, you know, that traditionally you'd see short cycle, packaging, discrete, you know, followed by, you know, a couple of quarters by longer cycle process. I think, you know, 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, requirements for power to support data center. 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 and 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 and 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 a 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, you know, it's going to be 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
Analyst Chris Snyder (Morgan Stanley): Thank you. 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 margins 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. Thank you.
Executive Christian: Yeah, Chris, thanks for that. So yeah, the sequential side, it really, you know, we're talking about in that sequential low single digit up, it's all coming for the most part from the solutions project configured order side of the business that will have a negative impact from a mixed 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 platish.
Analyst Jeff Sprague (Vertical Research Partners): Hey, thank you. Good morning. My question kind of rhymed a little bit with one you just answered, but I was wondering if we could 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?
Executive Christian: Sure, Jeff, I do. The price-cost side, obviously, 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 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 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 then volume in Q4 is not as robust as what we saw in Q3, if I'm interpreting that correctly.
Executive Christian: I think it's, you know, you got to think about it from the mix side that's happening there, too. So when you have sequentials that with software and control, we're calling out flat sequentially, there will be some price in there sequentially. So, you know, the volume is going to be a tick less. 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 and control. And obviously, those are tough comps that we're talking about in the fourth quarter. That is our toughest comp of the year before.
Analyst Andrew Buscalia (BNP Paribas): Hey, good morning, everyone. I wanted to touch on, yeah, good morning. I wanted to touch on along those lines, that line of questioning, software control margins. You know, you've done a lot of good work this year. You know, you get those margins up 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 margins. I know you don't want to give 2027 guidance, but can you set us up for how you're thinking about Software and Control as we move into next year, just given the high bar we're looking at.
Executive Christian: 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, you know, we're only just now getting to and through the units of controllers shipped that we were at pre-COVID. So there was a lot of volatility over the last six or seven years. And so we're going to exceed the unit volume in logics controllers, which drives a lot of the software control performance this year. And 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 are going to yield the greatest growth. There's a lot of opportunity. We're not hitting anything close to an asymptote of where we're not going to be able to continue to grow and to perform from a profitability standpoint.
Executive Christian: And then specific around software control margins, yeah, it's been a great story. The last two 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 and the setup on it, yep, 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, initial outlook. But, you know, we're talking about low 30s for total segment operating margin for software and control for the full year 2026. I think we have the opportunity to continue to build off of that.
Analyst Andrew Buscalia (BNP Paribas): Okay. Yeah. And, you know, the other question I had was around kind of your two 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 comp or true demand picking up in either one of those markets?
Executive Christian: Yeah, I think you should look at that as a positive read on demand as well as our offering. So automotive in the teams is a good result. It's a good result last quarter as well. And we cited some renewed project activity there. I'm not ready to call that the floodgates are open, but we've seen some nice wins beyond modernizations in new projects. The things that drives the most spend in automotive through the cycle is model changes. And as people are re-centering on hybrid and industrial internal combustion vehicles, 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 beverages are 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, you know, 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.
Management: Thanks, Blake.
Analyst Noah Kay (Oppenheimer): Thanks for taking the questions. 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've continued 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 we'd just sort of love an update on how you see the integration and what the growth prospects look like.
Executive Christian: 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. You know, 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 Eye Track and Magna Motion. The automobile robots will see another year of strong double-digit growth. We continue to work on the profitability there, and we expect that will be profitable and clear path in the fourth quarter.
But in addition to the consumer, you also see opportunities for this in semiconductor, 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, you know, 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.
Analyst Noah Kay (Oppenheimer): And then just to follow up question on CapEx trajectory, you know, we're coming in around 3% of sales for the year here, as you said in your remarks. I think, you know, 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. You know, 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?
Executive Christian: Yeah, 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 so. We do have Greenfield project. Obviously, it's happening in New Berlin, Wisconsin. We'll start making investments at pace as we turn and look at 27. That'll 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. EBIT does 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 continue to be accretive to the organization.
Management: Great. Thanks, Christian. Julianne, we'll take one more question.
Analyst Joe Ritchie (Goldman Sachs): Certainly. Our last question today will come from Joe Ritchie from Goldman Sachs. Please go ahead.
Analyst Joe Ritchie (Goldman Sachs): Hey, guys. Good morning. So just a lot is 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 S&C margins to be below 30%, so-called, somewhere in the high 20s. I'm just wondering, is it possible to help bridge that? And I know that 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. Thank you.
Executive Christian: Hi, Joe. Good morning. No, we actually are. We're not looking at it to be in the 20s and 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, yeah, and again, that sequential side is really more the inflation coming in. with the volume or the top line being flat. So that's really how the math comes together.
Management: Okay, perfect. Thanks for the clarification.
Management: Okay, that concludes today's conference call. Thank you for joining us today.
At this time, you may disconnect.
Thank you.