Rockwell Automation, Inc (ROK) September 2026 Conference Transcript

Welcome to the 14th Annual Laguna Conference. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com slash researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley representative. 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. Thank you guys for being here. Starting off, just looking generally with some of the longer-term trends impacting the company, how have customer conversations kind of changed now compared to last year with some of the progress around reshoring and bringing 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 generally positive demeanor. And within each of those industries, you know, there's end market specific activities going on as well. So as we move across, you know, 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, you know, 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 data. Decent growth, again, primarily centered around modernizations. 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. You know, 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, show some signs of progress.

Yeah, I think across the board, we're seeing good progress across industries. and, you know, 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 that 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?

Yeah, I think about a year ago, There were some conversations we heard from two 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, you know, 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. and to give them the superpowers to get as much productivity as possible, you know, 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, you know, time to value is so important. Modularity, these things are looking, you know, 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 green fields and bigger project activity. What do you see as the main catalyst that would really unlock that larger project activity going forward?

Yeah, I think a reduction in the uncertainty, you know, 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 three countries, I think that would release more capital.

And is there 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, The USMCA 232, Section 232s are, you know, 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 OBBA. 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 non-market 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 go towards that longer-term strategy of capacity?

Yeah, 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 are looking at their own strategy and their own roadmap in that way.

And then as we kind of dig into the verticals more, Rockwell's exposure is typically aligned more so with 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 Rockwell's products and solutions to those markets that have more often been produced overseas?

Yeah, so I think there's a nice mix. is we track new capacity projects, so major new capacity, whether it's reshoring or shoring, or in some cases it's growing, like in the case of data center, 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 were traditionally not as associated with Rockwell in 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 one or two 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 car 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.

Yeah, 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 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, you know, 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 U.S.-based food or beverage or home and personal care end user, they'd prefer that we were working with them and not competing with them if they had made it clear that they were not going to use Rockwell. well. 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 may be losing share in the market. How are you guys able to differentiate and how would you assess your competitive positioning?

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 and some really important places. We look at, you know, head-to-head, you know, marquee battles where we're competing with, you know, 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. You know, when I look at software and control and the build-out of our software-defined automation, that's not just a virtual PLC. We have that, and we'll be showing it to you at 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 factory-talk optics at the edge. And then we have a lot of new products coming out of intelligent devices as well.

Yeah, we've had a number of really positive new product introductions where, you know, 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 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 you'll see it 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 plans and how we're applying artificial intelligence as an assist and 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?

Yeah. So at the highest level, while it would make everybody's job easier if we could apply a percentage to CapEx, you know, 1%, half a percent, 2%, it's still too variable by individual industry. 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 factory talk optics, 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. processes 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 in the 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?

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

Yeah, look, I think, you know, 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 lifecycle management. So our customers see a significant benefit across the lifecycle of the system And because of that, artificial intelligence is certainly a technology enabler that we're focused on. And that's not just a standalone AI product. That's how we bring that to all aspects of the architecture. So artificial intelligence, you know, 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 an optimized 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 automotors 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 in an operation.

Yeah, if you think about, you know, some of the big themes that we've talked about, software-defined automation, you know, our offerings in the physical AI area with robotics, with motion control, you know, 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. other. 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?

Yeah, so, and Tessa can talk in a minute about what she's doing specifically in intelligent devices, but 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 in 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. 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, you know, 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.

So, you know, we're really focused on a systematic approach, you know, a continuous improvement, and the team has really embraced that. And so in intelligent devices, expanding margins, you know, 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, so direct material is a big piece. Manufacturing efficiency, 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, you know, first of all, I don't think that we can slot, you know, 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. We're 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, yeah, 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 and markets. I like that we're getting good growth from data center, but it was only two of the ten 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 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, you know, that it's a consistent investment. We continue to be committed to, you know, 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 years ago and that base as a way to grow more profitably than ever before. And I think our conversion on incremental revenue, you know, is a testament to that. 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.

Thank you. Could I just ask about semiconductors? And, you know, 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 effect availability of the memory. I mean, we are, you know, 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.

Blake, if I could add, I think one of the biggest lessons coming out of the supply chain crisis was the processes and the agility for the organization to also respond. And so whether 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.

Yeah, 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, you know, 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.

Yeah, thanks, everybody.