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Rockwell Automation (ROK +14%) delivers a sturdy Q1 (Dec) performance, returning to delivering double-digit earnings upside on shrinking revenue declines. The automated device maker touts an expansive portfolio of automation-based products, covering uses from circuit protection and energy monitoring to network security and industrial control products. ROK's product suite has benefited in an age when enterprises are searching for ways to extract efficiencies and cut costs.

• ROK has been cutting costs of its own, noting today that its plan to achieve $250 mln in productivity benefits compared to last year remains on track despite encountering headwinds, such as significant FX impacts and recently announced tariffs. Speaking of which, ROK commented that it was working on various scenarios before the election to mitigate tariff-related impacts. As a result of its ongoing cost-cutting, ROK crushed analyst earnings estimates in Q1, delivering a much narrower yr/yr decline at 10% to $1.83 than expected.
• Revenue still fell, contracting by 8.3% yr/yr to $1.88 bln. However, this represented an encouraging improvement from the 20.6% drop last quarter. Management witnessed better-than-expected order performance in Q1, with sequential growth across all regions and business segments. Furthermore, orders surpassed shipments, up 10% yr/yr and mid-single-digits sequentially, providing additional backlog for the remainder of the year.
  • It is worth pointing out that ROK won multi-million dollar orders across several key industries in Q1, particularly in its home market, the U.S., even as macroeconomic uncertainty throttled customers' CapEx plans. This builds a solid foundation from which ROK could reignite revenue growth once economic uncertainty begins to ease.
• Nevertheless, aside from the U.S., weakness still persisted across the globe. In the EMEA region, sales slid by 14% yr/yr in Q1. ROK continued to notice softness across most of this region, especially Germany and France. In Asia-Pacific, revenue fell by 9%, led by a double-digit drop in China. ROK stated that while this region's automation market should stabilize sometime in 2025, it anticipates Asia Pacific will be its weakest region in FY25 (Sep).
• As a result of the macroeconomic unevenness, ROK kept its FY25 guidance mostly unchanged from last quarter, projecting EPS of $8.60-9.80 (unchanged), organic revenue growth of negative 4% to positive 2% (unchanged), and reported revenue growth of negative 5.5% to positive 0.5%, a slight decrease from its previous projection due to a roughly 150 bp impact from FX headwinds.

While ROK's Q1 performance was decent, there are still areas of concern as most markets outside the U.S. remain weak, not to mention looming tariff impacts, the full scope of which have yet to be determined. However, investors are looking beyond these potential setbacks, liking ROK's mostly reiterated FY25 guidance and sustained signs of life in the U.S. despite macroeconomic headwinds. Given that the stock entered correction territory, depreciating by over 10% from December highs, leading into today's report, the market likely feared worse.