Rockwell Automation (ROK) Q4 2026 earnings call transcript

At this time, I would like to turn the call over to Aijana Zellner, Head of Investor Relations and Market Strategy. Ms. Zellner, please go ahead.

Thank you, Julianne. Good morning. And thank you for joining us for Rockwell Automation's fourth quarter, fiscal 2026 earnings release conference call. With me today is Blake Murette, our Chairman and CEO, and Christian Rosie, our CFO. Our results were released early this morning, and the press release and charts are available on our website. These materials, as well as our remarks today, will reference non-gats measures.

Reconciliation of these non-gats measures are included in both the press release and charts. A replay of today's webcast and a transcript of our prepared remarks will be available on our website at the conclusion of today's call. Before we begin, please note that our comments today include forward-looking statements regarding the expected future results of our company. Our actual results may differ materially due to a wide range of risks and uncertainty described in our earnings release and SEC filings.

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

Thanks, Aijana, and good morning, everyone. Before we turn to our fourth quarter results on slide three, I'd like to make a few opening comments. First of all, since we're talking to you from Milwaukee, Wisconsin, it seems only fitting that we congratulate the Milwaukee Brewers on winning the World Series.

Fiscal 2026 was a great year for Rockwell, too. We delivered growth at the high end of our long-term framework, drove significant margin expansion, and generated strong double-digit earnings growth, all in a year marked by inflationary pressures, uncertainty, and geopolitical volatility.

Our performance reflects the differentiated value resulting from our strategy, offering and operating model. We're gaining share in key product areas, and we achieved our long-term enterprise operating margin target of 22% three years after setting the target.

I'm especially proud of the unique new products and productivity improvements we've delivered over that time. We had a very strong Q4, even before the benefit from tariff refunds received from the U. S. government, and we initiated a tariff refund program for eligible customers.

The net impact reduced reported sale, approximately $85 million, and increased adjusted EPS by 11 cents. For the clearest picture of our results in the quarter and for the full year, we will detail the impact of the IEPA tariff refunds on company results. This impact is included in the bridges on slides three and six, and you'll find a complete recap on slide eight of the earnings deck.

Individual business segment, industry, and regional results do not reflect the impact of tariff refunds. On slides three and six, you see core growth, which does not include the impact of tariff refunds. That core growth reflects the strength and diversity of our end markets.

We continue to perform well in our traditional markets, including automotive, food and beverage, energy, and life sciences, while expanding our presence in additional growth areas, including semiconductor, data centers, and warehouse automation. I'm particularly happy with our strong market access across discrete, hybrid, and process industries, positioning us to capitalize on opportunities across a wider range of end markets.

Customers continue to turn to Rockwell to improve productivity, resilience, quality, safety, and workforce effectiveness. As industrial operations become more AI enabled and increasingly autonomous, customers are looking for ways to orchestrate people, AI agents, workflows, and industrial systems in real time. We believe this represents a significant opportunity for Rockwell and plays directly to our strength. Let's now turn to our fourth quarter results on slide three.

Excluding the impact of the tariff refunds and the Sensia Joint Venture dissolution, core sales grew 7% in the quarter. Remember that we grew double digits in Q4 of fiscal year 25.

Demand remain healthy in all three business segments, coming in largely in line with expectations. Consistent with prior quarters, long cycle solutions with continued strength in data center, semiconductor, and automotive.

Human devices, organic sales were up 5% versus prior year, driven by strong adoption of recent product introductions, and year over year growth in food and beverage, and semiconductor. Auto AMR business delivered another quarter of double digit sales growth and reached profitability as planned, marking an important milestone as we scale our physical AI and autonomous operations capabilities.

Software and control organic sales grew 15%. Logic sales had a strong finish in Q4 with 25% year over year growth and mid single digit sequential growth. Organic sales and lifecycle services were up 2% year over year. Booked to bill in this segment was 0.97. Above our historical Q4 seasonality with new demand for the energy focused automation business that returned to Rockwell following the Sensia dissolution.

Organic annual recurring revenue was up 5% year over year with high single digit growth in software and low single digit growth in lifecycle services.

While ARR growth did not meet our expectations, renewals remained strong and we continue to add new customers across industries and regions. A good example is boost a German manufacturer high precision automotive components who selected our cloud native Plex to accelerate their digital transformation and improve visibility traceability and quality across operating margin expanded 320 basis points year over year to 24 point positive impact from tariff refunds. Just the DPS was $3.88 in percent year over year price cost was positive in the quarter and for the full year.

Moving to slide four for Q4 industry highlights sales and discrete were up 20% year over year with strong growth and semiconductor data center and automotive.

Automotive sales 15% versus prior year and delivered its strongest quarter in two years as customers increasingly standardized on our software controls and MES platforms to support next gen manufacturing programs. E-commerce and warehouse automation sales were up high single digits in the quarter against a difficult comparison as we grew 70% in the prior year. Importantly underlying demand remained healthy driven by continued modernization investments for the full year E-comm and warehouse automation grew nearly 30% marking another year of exceptional growth and reinforcing our confidence in the long term opportunity.

Semiconductor sales were up almost 50% year over year. High and data center business continues to see strong demand from investments in AI infrastructure and next generation computing capacity driving demand for our automation software and power management solutions. With data center head to a meaningful business for Rockwell, we will begin reporting semiconductor and data center as a combined vertical beginning in fiscal 2027.

Together these markets represent about 10% of our revenue and are supported by powerful long term growth drivers. A Q4 win with QTS, a leading hyperscale data center provider, highlights the expanding role Rockwell is playing in data centers. As QTS scales capacity to support AI driven demand, the company is standardizing on Rockwell's technology, automation, security, asset management and digital infrastructure, positioning us to capture a broader share of spend and participate in future build downs across its global footprint.

Moving to our hybrid industries, sales in this segment grew mid single digits with strong growth in life sciences and tire.

Food and beverage sales were up low single digits in the quarter and finished the year with mid single digit growth. Customer investment remained focused on productivity, cost reduction and operational resilience.

Manufacturers continue to invest in automation and digital transformation initiatives to improve efficiency and operating performance. We're also seeing capacity investments in areas of strong consumer demand, a carry ingredients, a global nutrition solutions provider, process control, power and production optimization capabilities, supporting a significant capacity expansion and future growth. Like sciences sales, high single digits versus prior year.

Looking ahead, we see a healthy pipeline of capacity expansion and infrastructure projects with growing adoption of MES and process automation solutions, creating opportunities across our entire portfolio. A great example of this is Stryker, a leading medical device manufacturer who selected Rockwell's integrated control and motion technologies to create a standardized platform for future growth.

Moving to process through up low single digits with continued growth in energy and metals, partially offset by mining and chemicals. Energy sales were up high single digits in the quarter. Local deployment remains disciplined. Customers continue to invest in projects that enhance reliability and energy security, supporting a healthy pipeline across oil and gas, nuclear and renewables.

We see a particularly attractive opportunity in LNG, where global investments in new export capacity and infrastructure modernization are closely aligned with Rockwell's capacity. One example is growing capabilities in automation, software and cybersecurity for these applications.

One example is Peramplopes LNG development in Gabon, where Rockwell was selected by DiPstone, a global EPC company, to provide an integrated suite of automation, process safety, operator training and motor control solutions for this large-scale energy project. Mining sales were down about 10% due to project timing and prior year comp.

Customer investment remains focused on increasing production, improving productivity and enhancing operational resilience. We continue to see a strong pipeline for lithium and other critical minerals, where investments in capacity expansion and autonomous operations are creating an attractive long-term opportunity portfolio. A great example of a recent win in mining is with Valle, one of the world's largest mining companies, who chose Rockwell as strategic modernization partner, at his Carages Mining Complex, to create a scalable blueprint for future infrastructure upgrades, supporting Valle's gold safety, reliability and production growth. Let's turn to slide five for our 24 organic regional sales.

The U. S. was our strongest geography in the quarter and for the full year, ending fiscal 26 over 12% organic growth. We expect North America to continue to be our fastest growing region in fiscal 2027.

Moving to slide six for key highlights for fiscal 2026, as you can see, we had a strong fiscal 26 with our core sales of 9% versus prior year. Organic ARR through 5% with high single digit growth, where ARR, operating margin, over 22% for three straight quarters and will update our long-term margin targets at the upcoming investor day. Adjusted EPS grew over 20% year over year.

Free cash flow conversion of 113% exceeded our expectations for the year. Let's now turn to slide seven to review our fiscal 2027.

We enter fiscal 2027 from a position of strength, demand across both our traditional and emerging end markets remains healthy. And customers continue to invest in productivity, resilience, and operations.

We expect our organic sales growth for the year to be in the 6% to 9% range. The midpoint of our guide assumes a seasonal sequential decline in Q1 followed by gradual improvement through the remainder of the year. Christian will provide more detail in his section. Annual recurring revenue is expected to grow 7% next year, which expect our enterprise operating margin to increase by about a point and adjusted EPS to be $15 at the midpoint. We expect free cash flow conversion of 100% in fiscal year 27.

I'll now turn it over to Christian for more detail on our Q4 and financial outlook for fiscal 27. Christian.

Thank you, Blake, and good morning, everyone. Before I walk through our fourth quarter results, I want to direct your attention to slide eight and address the impact of the IEPA tariff refunds.

First, we received 103 million of tariff refunds from the US government, representing the vast majority of IEPA tariffs we previously paid, along with $5 million of related interest. Second, we initiated a customer refund program for price increases, we previously implemented to recover those tariff costs. Based on our estimated redemption rate, we recorded $85 million of refunds to customers reflected as a reduction to unallocated sales on our P&L.

Slide eight provides additional details on these items, including the interest benefit. All of these impacts are reflected in adjusted EPS and net a related $8 million nonrecurring charge in the tax effect. The net tariff refund impact is 11 cents in the quarter and for the full year of fiscal 26.

For presentation purposes and clarity, all tariff refund activity is being reported in other unallocated items in the P&L. This preserves the presentation of our segment results. With that context, let's turn to our fourth quarter results on slide nine.

Fourth quarter reported sales were up 1% versus prior year with organic sales up 3%. As Blake mentioned earlier, our core sales growth in the quarter was 7%. The currency impact was neutral.

Price contributed about two and a half points to organic growth with minimal incremental tariff related pricing as we laugh prior year actions. Full year of price realization was similar to the fourth quarter. Price cost was positive in the quarter and tariff price cost has remained EPS neutral since we implemented tariff based or tariff related pricing.

Enterprise operating margin, as reported, expanded by 320 basis points year over year in Q4. Strong operating performance drove 140 basis points of margin expansion. Additionally, 130 basis points came from tariff refund items and about 50 basis points came from the Census dissolution.

The adjusted effective tax rate for the fourth quarter was 20.9% up from 17.8% last year. This year over year increase primarily reflects the best pillar too, partially offset by higher discrete tax benefits. For the full year of fiscal 26, our adjusted ETR was 19.6% in line with our guide.

Free cash flow was $602 million in the fourth quarter, up $197 million a year over year, and free cash flow conversion in the quarter was 139%. Tariff refunds contributed approximately 21.2% to conversion.

Slide 10 provides an overview of sales and margin performance across our operating segments. As a reminder, segment results do not reflect the impact from the tariff refunds.

Intelligent devices margin of 21.6% up 180 basis points year over year was driven by higher sales volume, variable currency, positive price cost, and mix, partially offset by higher compensation. Organic incremental margins were in the mid-40s. Software control margin of 34% was up 280 basis points versus prior year, driven by 15% organic sales growth. This segment saw year over year incrementals right around 50% on an organic basis.

Lifecycle services margin was 16.4%. Better than our expectations and down 110 basis points year over year, primarily reflecting tough prior year comps and project mix.

Overall, excluding the impact of the tariff refunds, Rockwell delivered incremental margin in the high 30s, reflecting strong operating leverage and underlying growth.

Let's move to the next slide 11 for the adjusted EPS walk from Q4 fiscal 25 to Q4 fiscal 26.

Core performance contributed 40 cents of year over year EPS growth, primarily driven by higher volume, followed by favorable mix and positive price cost, partially offset by higher compensation.

Net tariff refund related items were an 11 cent tailwind. Currency was a 10 cent benefit. Lower share account from our opportunistic share repurchase program contributed a 5 cent benefit.

We entered the year with a strong productivity goal and exceeded it with productivity contributing meaningfully to our solid margin performance. Our teams continue to execute thousands of actions across the company to simplify how we operate, improve efficiency, and create capacity for growth. Intelligent devices, full year incremental margins were in the high 30s, and the 20% segment operating margin was an expansion of 200 basis points year over year on both a reported and organic basis. This improvement was driven by volume growth with good leverage and positive price cost.

Software control delivered incremental margins in the high 50s with segment margins expanding by more than 400 basis points year over year to 33.8%. This was all about volume growth for software control and it flowed through nicely.

In lifecycle services, sales, earnings, and segment margins were essentially flat year over year after adjusting for the sensitive dissolution.

At the total company level, enterprise operating margin for the full year was 22.2%, an increase of 330 basis points. Operating performance drove about 270 basis points of margin expansion, and we received a slight full year benefit from tariff refund items and the sense of dissolution. Underlying conversion was particularly strong. Excluding the impact of tariff refunds, full year incremental margins were around 50% on an organic basis.

Engineering and development investment remained at about 8% of sales supporting continued innovation and our long term growth priorities. Adjust the DPS of $13.42 was up 27% and $1.72 better than the midpoint of our initial guide for the year, including the 11 cent benefit from tariff refunds.

Free cash flow conversion was 113% for the year, including a six point benefit from tariff refunds. ROIC was strong, reaching 20.4% on a trailing 12 month basis.

Finally, we returned about 1.9 billion to share owners through dividends and share repurchases during the year, while still ending fiscal 26 at less than two times leverage.

Our capital structure and liquidity remains strong. Moving on to the next slide, 13 and our fiscal 27 outlook. We expect organic sales growth of 6% to 9%, or 7.5% at the midpoint. Reported and organic sales include a 100 basis point benefit from the fiscal year 26 customer tariff refund program accrual with strong growth at the midpoint of the guide at 6.5%.

The Sensia Devessiture represent about a point and a half headwind to reported growth, resulting in expected reported sales growth of about 6% at the midpoint.

Our enterprise operating margin guidance is 23% up almost 100 basis points year over year. We expect to achieve about 300 basis points of underlying price in fiscal 27, and these pricing actions along with productivity will help to offset ongoing inflationary pressures. The Sensia dissolution will also give up a slight margin tailwind for the year.

Our adjusted DPS guidance is a range of $14.50 to $15.50, or $15 with the midpoint. The midpoint of our organic sales growth, sorry, at the midpoint of our organic sales growth, we expect incremental margins in the high 30s, excluding tariff refunds. We are also stepping up investments in our advanced manufacturing and digital infrastructure, including construction of our US Greenfield facility.

We are targeting CAPEX spending of about 4% of sales in fiscal 27. We don't expect a significant impact to depreciation in 2027, as the largest investments won't be put into service until after the fiscal year ends. In terms of the calendarization, as Blake mentioned, we expect a typical sequential decline in Q1 followed by a sequential improvement in subsequent quarters.

This is true for both sales and margins as we progress through the year. Now, let me share some additional color on our first quarter. In Q1, we expect total company sales to be up mid single digits organically year over year, or up low single digits on a reported basis with organic incremental in the mid 30s. And adjust the DPS of around $3 per share.

From a business segment standpoint, intelligent devices organic and reported sales in Q1 are expected to be up mid single digits year over year with segment margins up slightly year over year.

Software control organic sales are expected to grow 10% with margin in the low 30s and incremental margins in the low 40s. Lifecycle services organic sales are expected to be up slightly year over year, while reported sales be down high single digits with segment margin in the mid teens above the prior year. For the full year, intelligent devices sales are expected to grow mid single digits on an organic and reported basis with segment margin expanding about 100 basis points year over year. Software control sales growth is expected to be high single digits on an organic and reported basis with margins up slightly year over year as we lap some tough comps and absorb inflationary pressures.

Lifecycle services organic sales growth is expected to be up low single digits with segment margin up about 100 basis points year over year. As a reminder, the Sensia dissolution is a $100 million headwind to revenue split evenly between Q1 and Q2.

Let's turn to slide 14 for our full year fiscal 27 adjusted EPS walk. We expect poor performance to contribute $1.60 of EPS growth, reflecting the organic growth and margin expansion in our outlook. A lower share count is expected to provide a 20 cent tailwind, while net tariff refund related items are expected to be an 11 cent headwind.

All other items combined are expected to be an 11 cent headwind. We expect our adjusted effective tax rate to be 20% for the year.

A few additional comments on fiscal 27 guidance for your models. Corporate and other expense is expected to be around $120 million. Net interest expense for fiscal 27 is also expected to be about $120 million. We expect average diluted shares outstanding of about 110.4 million, including approximately $600 million of planned share repurchases during the year.

We'd like the momentum we brought into the year. This team has shown the ability to adjust to the changing environment and continues to drive performance. We're planning to do that again in fiscal 27.

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

Thanks, Christian. We had a great year and we see continued growth and expanded profitability in fiscal year 27. Rockwell has a very strong leadership team in place. We seasoned executives who understand both our traditional sources of value as well as the new ways to win. We are leading a committed team of worldwide employees focused exclusively on industrial automation and digital transformation, complemented by the best partners in the business.

Automation fair and investor day are less than two short weeks away in Boston. There has never been an automation fair that will showcase more new groundbreaking technology than this one, so I hope to see you there.

Good morning. Blake, early in the comments, you said that you were going to start combining semis and data center into one is 10% of revenues. It's pretty material. What do you think the growth rate is of that kind of category? I think in terms of like a five-year growth rate, just trying to get a sense of what kind of tailwind this is for you guys.

Yeah, so we've obviously seen good growth leading up to fiscal 27. For fiscal 27, as you said, about 10% of the combined verticals, and we expect mid-teams growth for the year. And I expect that to continue, Scott. I mean, it's well known that people are trying to make products smarter with embedded semiconductors as a part of the bills and material in addition to data center buildup.

And I just don't see that trend slowing down. We've wrote the two verticals together because of the large amount of commonality and the applications we're addressing. It's really all about the environmental control of these facilities with data centers. It's the central utilities plant in the semiconductor. It's the building management systems. And so we think that goes together. And as you said, it's an important part of our business that's growing fast.

That's complemented by the continued growth in our traditional areas of value.

Yeah, I think typically in mining, we see a strengthening project funnel. But the delays in CAPX and mining and, you know, some of the other industries continues. Again, these are not projects that are being canceled. They're being extended out for, you know, the reasons that we've talked about in the past. Mining, I think, has positive growth as do all of our verticals forecast for fiscal year 27.

We just didn't see it materialized in Q4, but obviously we're forecasting growth in fiscal 27. I would say similar to home and personal care. If we look at the hybrid area, there's a lot going on out there and we are forecasting growth for fiscal 27.

We can. Excellent. Fantastic.

Sure. Andrew, I'll start with some of the macro effects and then I'll talk about what we're doing internally with things that we can control. First of all, the ARR and life cycle services is being affected to some extent by the delays in projects that often will go in with a big initial project, but with, if we're doing a good job, ARR attached to it. The second is that because a lot of these projects are on digital infrastructure networks and cyber security and so on, with the inflation that's affected IT equipment in particular, we're seeing the scale being reduced on some of those rollouts. So initially, a food and beverage customer might be looking to roll out, you know, a managed services contract at 30 additional plants, and they may cut that in half.

And so that's having some impact. We're certainly fighting for every project that we have the opportunity to participate in and we're working on the business internally through simplifying our processes to make it easier both to deliver these projects as well as to deliver them, you know, very profitably. And we do that through the growing trusted content offering, the use of our internal, agentic orchestration tools to reduce keystrokes. And that's not just a productivity measure, that's also a revenue getting measure because if we can quote these things more efficiently then we'll win more of them. And then as we talked about our investments over the next few years include digital infrastructure to make it easier for customers to place orders for hardware software and services simultaneously.

Well, to be sure, Andrew, the increased pace of new product introductions and logics do contribute to the great growth and profitability that we saw in fiscal 26 and that we expect to continue to see in 27. So the L9, which is the newest processor, is the highest performance that we've offered. It's seen strong adoption in the market. You'll of course see that at automation fair, software defined automation with the ability to run logics on an open compute surface will be in full display.

And then the other products and enablers probably at the head of the list, I would point out factory talk conductor, which applies a gentic orchestration to our software tools across control and operator interface, design, operate and maintain are all impacted by the ability to simplify engineer's effort to create these systems and then to manage them. So it is contributing to the financial results we're seeing because it's helping us gain share, and it's doing it very profitably.

Morning.

Well, we're winning an automotive. I mean, the mid teams growth with that we saw in the positive outlook going forward is testament to the adoption at both our existing and new customers with our traditional sources of value, but also they're obviously interested in what AI can do to make them more most productive in their manufacturing processes and with the things that Rockwell has developed. I mentioned factory talk conductor, emulate 3D, but as well as the work that we're doing with partners. So, I should mention that Rockwell and NVIDIA are collaborating to integrate AI and advanced computing into our platforms and services, and this helps manufacturers and automotive and really across manufacturing support the workforce and expand U. S. productivity and capacity, and that's an important part of the equation as well.

Yeah, sure. Absolutely, Andy. So, yeah, as we think about the shape of 2027, you know, as we started out with our discussion today, yeah, we got a sequential down in the first quarter, and then we're going to go into incremental growth as we go through the year of both on a sales and margin perspective. The inflation side has not abated. That is, we still have an inflation. The rate of change has come down. The number of notifications that we're getting from our suppliers around those changes and the price that they're selling to us, those have come down. But we still have inflation and our experiencing inflation. The good news is that for the full year, fiscal 26 and for the fourth quarter, we did have favorable price costs.

And, you know, for the for the 26 timeframe, it was slightly diluted to our margin. As we turn the corner, we look at 27, though, and we think about the pricing actions, that 300 basis points of price that we have in place today that we're expecting to achieve, that should help us to stay a pace with what's happening on the inflation side.

And the productivity actions, I'm glad you brought that up. We're going to go into that more at our investor day. But as you know, this has been an area of a lot of activity within Rockwell over the last couple of years. I talked about thousands of projects and initiatives that are happening inside the organization right now. That list continues to grow and there's everything from small projects to the larger ones. It is not just in the factory. It's also happening with our indirect spending. It's happening with our SG&A spend levels. So there's a lot that's occurring. I think the part that's exciting is that it's not just used for cost reduction. That is, we're using it to increase the velocity inside of our business.

So AI is a really good example of that. AI, yes, there's some soft savings. There's some hard savings. Those hard savings help us to offset some of the incremental costs that we have, related to deployment of those technologies.

But more importantly, it's driving velocity. We have a number of things you're going to see on the floor at Automation Fair in a couple of weeks that were not even necessarily on the project plan to be achieved in fiscal 26. And the team was able to get those done because of the fact that we were able to get a lot of productivity out of our AI initiatives, especially in the software development side. So really good opportunity for us to continue to drive that velocity, but also expand margins.

Yeah, Julian. So, yeah, we are talking about mid single digit growth organically. And that is, of course, you know, taking out the impact of the sensea dissolution that occurred.

And so there is some seasonality, of course, that happens for us from Q four and Q one, and then we go and grow from that point. Nothing specifically to call out around anything that we see in the pipeline or project related that would dramatically change the viewer. You know, what's happening around the sequential as we go through the year. So I think the way to think about it is that, again, it's just some modest changes from quarter to quarter. But broadly, it's, you know, we feel really good about how they're shaping up for us.

Yeah, there's a certain amount of prudence at this point of the introduction of the guide. But hopefully you're here in the sentiment that customers are positive about their prospects going forward. We're hearing that from end users across multiple verticals. And we're hearing it from machine builders as well. Their backlog is healthy and this new innovation gives them opportunities to add value to their own offerings.

Sure. Well, you got the numbers right. 25% logic growth in the fourth quarter. We're expecting software and control to be high single digits in fiscal year 27 with logics in that ballpark. And this is underlying market demand as well as share growth with our traditional offerings as well as the software that with logics forms a control system. We think we've got the best in the business. And obviously you'll see a lot of that in the next couple of weeks. But in terms of positioning this, as we've talked about in the past, number of units. The number of units have gone above pre pandemic levels with respect to controllers, but there's still plenty of room to run in this respect.

We don't see this impacted by any sort of restock or advanced buying. It's underlying demand and it's broad based across the traditional industries, like automotive and food and beverage and life sciences and energy, but also with the demand that we've talked about. We've talked about the demand and semiconductor and the common warehouse and data center.

Sure. So mining, we've talked before. We've got a really good readiness to serve in mining, particularly as the miners are moving to more autonomous operations. That's a great fit. And as I and members of the leadership team have had discussions, you know, with boards and C-suite at the big miners, there really is a good fit with what we're doing and what they're trying to accomplish in terms of flexibility and throughput and safety.

And we're seeing that manifest itself in the funnel. So a lot of the jobs that we're tracking and some of the whims that we have seen, you know, have a distinctly digital aspect to them. It's not just the traditional power control that's been a big part of that vertical penetration in the past. It's also adding the things that Rockwell's uniquely positioned to do. And that does inform some of the optimism that we're seeing, but it's backed up by tangible growth and funnel. In chemical, that industry in general is, of course, under a lot of pressure, you know, from geopolitical volatility, pricing around the world and so on. We really focus on finished chemicals, fine chemicals versus bulk.

And so it's a segment of the market. And we do think that we're gaining share in that area as well. Again, we'll talk for years about plant P-A-X. And as we add AI capabilities to logics and software around it, that impacts plant P-A-X as well.

Yeah, sure. You're right. When I went through my prepared comments, the incremental, the organic fundamentals for rockwelling Q1 versus the prior year were at the mid 30s level. So you have that correct. And absolutely, you know, from an inflationary perspective, Q1 is going to be a more difficult quarter. And you brought up an important aspect around that, which is there's a difference. There's a difference between what's happening on the inflationary side versus availability.

And so on the inflationary side, memory is a really big driver for us. But it's really, you know, a broader drive on kind of a lot of the electrical components. And we talked a lot about what's happening in the demand environment around things that are impacted by data center. And so that's why it's a little bit broader of a base there. But memory is from an inflation side, a bigger portion of it. From the component availability side, we're setting actually pretty okay on the memory portion of it. But there's other electrical components, things like PCBs that are a little bit more difficult for us. Now, that being said, our team, the supply chain organization has done a really good job of making sure that we've gotten ahead of this, that we're getting those components in.

That doesn't mean that, you know, it's a one and done because we, of course, are using these. And these are a lot of the areas that we're getting some really good demand for our products. And so as we're depleting that inventory, we've got to make sure that we're putting it back into the funnel. So, you know, that again, the team has done a good job work, you know, we're focused on trying to make sure that we're still in a position to keep on shipping and they've kept us in that place.

You know, I've asked me in the past what any, you know, do we think that we're in with respect to new capacity in the U. S. And I'd probably characterize it as around the fourth inning as, you know, so there's plenty ahead of us there. It's not necessarily Greenfield. A lot of this is modernizations, new lines, retrofits, in, you know, existing building envelopes. But there's still plenty of room to run and we're winning at a high rate in those activities across multiple industries.

Yeah, I think we'll see improvement in both the software and the services element of ARR. For starters, the whole organization recognizes the importance of it. And, you know, we've done some things internally to underscore that as well as continuing to work on near term business system enhancements that help reduce the friction and things like renewals and being able to make it easier for customers to do things across the portfolio of Rockwell offerings, whether it's things that we've had for a long time or things that we've acquired in recent years. So I think the business environment for demand for those offerings remains high, digital services, cloud native software like Plex and Fix. You know, we continue to be very happy with the content and the value that comes from that.

Now we just have to continue to work on simplifying the motion and making sure that we're getting what's due us in those areas. And that's why we're optimistic about increasing the ARR in the coming year.

Hey, Steve.

Sure. Sure. Well, automotive, you know, we have seen good growth in the most recent quarters. 15% in Q4 and we're expecting it to continue to be a good source of growth. We're seeing modernizations. We're seeing companies continue to balance their offering by going, you know, away from this headlong rush to all EV to, you know, building what customers want to buy, which includes internal combustion engine, propelled vehicles as well as hybrid vehicles. And those model changes are what drives more than anything else, our business there.

To be sure, you know, there's still headwinds in that industry chief among them, you know, uncertainty around tariffs, USMCA tariffs, Section 232s or maybe even a bigger issue for them right now. But we have a great offering. And as I talked about before, it's not just about, you know, the traditional PLCs and intelligent devices. We're selling more software into these customers, into the tier suppliers, as well as the brand OEMs and mobile robots.

You know, we had double digit growth in the auto mobile robots and the single biggest serve vertical for automotive is automotive. So, you know, that look looks good there, both in terms of our offering, as well as, you know, customers needs to continue to evolve their offering. And that's about 10% of our business. For the beverage, about 20% of the business.

CapEx has been subdued. Those companies are dealing with, you know, at the top of the list, driving cost out. They've been hit with, you know, continuing raw material cost, packaging and so on.

But that's not a bad thing for us because it's efficiency that, you know, we're helping them with. And broadening the types of applications that we're dealing with. You know, in the past, we've talked a lot about confectionery. We're doing a lot with, you know, with protein and with, obviously, GLP1, you know, that's more life sciences, but that's a great area of growth for us going forward. It's going to change, you know, eating habits to some extent, but people are going to still want to eat and drink. And they're going to want more choices in what they buy as more people enter the middle class. We've been talking about that for years. And so we like where we're positioned there.

It's just we're not seeing or counting on, you know, a sharp increase in CapEx in either of those verticals, you know, when we put the guide together.

No, I think that's, I think you summarize it really well.

Yeah, sure. So I'll start and then I think Blake will probably jump in with some comments, but the intelligence devices. Yeah, they did have a good quarter and they're still below the long term corridor that we put in place of. 22 to 24%, but having a 20% for the full year and coming in at 21.6 for the fourth quarter was a really good performance.

As you mentioned, yeah, we had some good benefit from pricing that occurred in the quarter that the teams done a great job again on productivity. The intelligent devices business is one of those areas that is going to be the largest. It is our largest segment, so it's going to be the largest beneficiary of a lot of our productivity actions. A lot of that aligned really nicely. And it didn't hurt that the auto AMR business turned to profitability in the fourth quarter as well. So that also took away a detriment to their segment margins that has been in place for the last couple of years. And again, good progress and good development within that business.

Yeah. And we expect to continue to work on the margins in that business specifically with our auto AMRs, but across the portfolio, new product introductions help as well, being able to provide more value at lower cost is another piece of the equation and like software and control, they picked up the pace there. And then I would just mention cubic, the modular power control offering that we have continues to grow very well and very profitably.

Great.