Rockwell Automation, Inc. (ROK) Q3 2012 Earnings Report, Transcript and Summary

Thank you for your holding, and welcome to Rockwell Automation's Quarterly Conference Call. I need to remind everyone that today's conference call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Rondi Rohr-Dralle, Vice President of Investor Relations. Ms. Rohr-Dralle, please go ahead.

Great. Thank you, Sonia. Good morning, everyone. Thank you for joining us for Rockwell Automation's Third Quarter Fiscal 2012 Earnings Release Conference Call. Our results were released this morning, and the press release and charts have been posted to our website at www.rockwellautomation.com. Please note that both the press release and charts include reconciliations to non-GAAP measures. Additionally, a webcast of this call is accessible at that website and will be available for replay for the next 30 days. With me today, as always, are Keith Nosbusch, our Chairman and CEO; and Ted Crandall, our Chief Financial Officer. Our agenda today includes opening remarks by Keith that will include highlights on the company's performance in the third quarter as well as an update on the remainder of the fiscal year. Then Ted will provide more details around the quarter and our revised guidance for fiscal 2012. We'll then take questions at the end of Ted's remarks. We know it's been a busy earnings week for all of you, so we appreciate you calling in today. We expect the call to take about an hour. Before we get started, I need to remind you that our comments will include statements related to the expected future results of our company and are therefore forward-looking statements. Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties that are described in our earnings release and detailed in all of our SEC filings. So with that, I'll hand the call over to Keith.

Thanks, Rondi. Good morning, everyone, and thank you for joining us on the call today. My remarks will cover highlights for the quarter, our assessment of business conditions and an updated outlook for the remainder of the fiscal year. Please turn to Page 4 in the slide deck. We delivered solid 7% organic growth in the third quarter with organic growth in all regions. Operating margin expanded almost 1 point, and the earnings per share grew 9% or 13%, if you exclude the headwind from a higher tax rate. So overall, a good quarter in the midst of a more challenging macroeconomic environment. Let me give you some color on sales in the quarter. Generally, all regions came in at the lower end of our growth rate expectation, reflecting a slowing of market demand. The U.S. was stable, with 6% organic growth, and Canada had another robust quarter of 24% growth. EMEA held up reasonably well with 3% organic growth in spite of deteriorating macroeconomic condition. While parts of Western Europe declined in the quarter, emerging EMEA had very strong double-digit growth. In Asia, we actually saw stronger growth in mature countries than in emerging. While China did grow sequentially, 5% year-over-year growth in the quarter was below our expectation. The government's stimulus actions have yet to jump start economic growth. We continue to believe that China will rebound to higher growth rate, but it now appears more likely to happen after our Q4. India remained weak and sales were down in the quarter. We have yet to see evidence of improvement in their economy. Lastly, Latin America organic sales growth of 5% in the quarter fell considerably short of our expectation. Most of the sales shortfall was in Brazil, which is experiencing an economic slowdown and has led to delays in customer spending. Mexico, on the other hand, was a bright spot, with over 30% growth. I have a few other third quarter highlights. Our Process business delivered another good quarter of sales growth at 15%. On a year-to-date basis, sales are up 20% in Process. In June, the board approved a new $1 billion share repurchase authorization, and we increased the dividend by 11%. Both of these actions demonstrate our ongoing commitment to returning excess cash to shareholders. Ted will provide more detail on third quarter financial performance in his remarks. So I'll move on to our revised outlook. Every quarter, we do an extensive review with our sales and business leaders as well as a pulse check with our channel partners and key customers to try to get a read on current and future business condition. Although none of us has a crystal ball, we use this feedback along with macro indicators and our recent performance to develop our outlook for the remainder of the year. So what is all of this telling us? On the macroeconomic side, whether you look at GDP, industrial production growth or PMI, most of the indicators have weakened from 1 quarter ago. Customer and channel sentiment is generally less positive than 1 quarter ago. Most of the signs point to a flattening of cluster demand, at least in the short term. And although sales growth was solid in Q3, we started to see more projects getting pushed out. While there are project delays in every quarter, they seemed to pick up in the third quarter. So keeping all of this in mind, along with an increasing headwind of currency, we are reducing our sales outlook for the fiscal year to about $6.2 billion. Correspondingly, we are revising our fiscal 2012 earnings per share guidance range to $5 to $5.20, with about $0.05 of the reduction coming from currency. Even with the guidance revision, sales and earnings in this range represent another record year for the company. It is clear that we are in an environment of considerable macroeconomic and political uncertainty. We are closely monitoring market condition and are focused on how the fourth quarter will play out. We have proven we know how to be nimble in times of economic uncertainty and will continue to balance near-term financial performance with growth opportunity. At the end of the day, automation remains a great market, and our competitive differentiation positions us well to outgrow the underlying market. If historical cyclical patterns have any relevance, we would expect to see at least another 2 years in this cycle. Let me close by thanking all of the employees and partners of Rockwell Automation. Their dedication and domain expertise is core to our value proposition for customers. That is what will enable us to continue to gain market share and deliver superior returns to our shareholders. Here's Ted to provide more details on the financial results for the quarter and our revised guidance for 2012. Ted?

Thanks, Keith. Good morning, everybody. My comments will reference the slides on the website, and I'll be starting with Slide 5, the third quarter results summary. Revenue in the quarter was $1,560,000,000. That's up 3% compared to the third quarter of last year. The year-over-year impact of currency fluctuations reduced sales by about 4 points. That's a much more negative impact from currency than earlier this year and more negative than we anticipated at the beginning of the quarter. The decline of the euro compared to the U.S. dollar is causing the largest part of that difference. Segment operating earnings were $284 million, an increase of 8% compared to a year ago. General Corporate net was $19 million, that compares to $22.3 million in Q3 last year. This Q3 was somewhat lower than average quarter for General Corporate net expense, primarily just timing. We still expect the full year General Corporate net expense to be about $90 million. The effective tax rate in the quarter was 22.1%. There were some discrete items that reduced the rate in the quarter. Year-to-date, the effective rate was 23.8%. So through 9 months, we're running very close to our full year expectation of 24%. Last year in Q3, the tax rate was 19.1%, also lower due to the recognition of discrete items. Diluted earnings per share from continuing operations was $1.33, up $0.09 compared to Q3 last year and despite the higher tax rate. Average diluted shares outstanding in the quarter was 143.5 million, that's down about 2.4 million shares from the average of Q3 last year. During the quarter, we repurchased approximately 1.6 million of shares at a cost of about $121 million. Year-to-date, through the end of June, we've repurchased approximately 2.3 million shares at a cost of about $170 million. The increased rate of repurchases in Q3 is generally consistent with the intentions that we outlined in the earnings call at the end of April. Moving to Slide 6, this is a more graphical representation of total company results for the third quarter. As I noted on the prior slide, the year-over-year increase in sales for Q3 was 3%, 7% x currency. Reported sales were flat sequentially but up about 1 point, excluding currency translation. On the right side of the slide, you can see a healthy increase in segment operating earnings, both year-over-year and sequentially. Segment operating margin was 18.2% in the quarter, up 0.8 points compared to last year and up 1 point sequentially. The year-over-year margin expansion reflects volume leverage, partly offset by increased spending and unfavorable mix. We also benefited in Q3 from lower incentive compensation expense, including year-to-date adjustments related to reduced expectations for full year sales and earnings. It's a similar year-over-year margin causal in each of the segments. Through 3 quarters, segment operating margin is 18.2%, up 1.4 points from the same 9 months of last year. Let's move to Slide 7, which summarizes the Q3 results for the Architecture & Software segment. The left side of the chart displays the sales performance. Sales were $664 million, a decrease of 1% year-over-year. Currency translation reduced sales by about 4 points, so organic sales growth was approximately 3%. Sales were flat sequentially. Operating margin for the quarter was 27.5%, up 1.4 points compared to Q3 last year. Year-to-date operating margin in Architecture & Software is 27.1 points -- or 27.1%, up almost 2 points from the same period last year. Let's turn to Slide 8 results for the Control Products & Solutions segment. Sales were $897 million in the quarter, up 6% compared to Q3 last year. The increase included about 1 point contribution from acquisitions, offset by about a 5-point reduction due to currency. So an organic sales increase of 10%. Solutions and services businesses grew about 16% organically year-over-year, contributing the lion's share of the dollar growth. Sales in this segment were flat sequentially. Segment operating earnings were $102 million, an increase of 16% compared to Q3 last year, with segment operating margin at 11.3%, up almost a full point from a year ago. Year-to-date, Control Products & Solutions operating margin is 11.5%, up 1.3 points compared to last year. The next slide provides a look at regional sales performance. Keith provided a good deal of color on the regional sales performance, so I won't repeat that. Perhaps just a couple of comments. Looking at the difference between the growth rates in the middle column, that's the as-reported year-over-year comparison, and in far right column, which is x currency, you'll note the significant negative impact from currency, particularly in EMEA and Latin America, and the largest impact in Latin America coming from Brazil. In EMEA, with ex-currency growth at 5%, we benefited from about a 2-point contribution from acquisitions year-over-year. And to reinforce a point that Keith made, maybe the most positive message from this slide is the organic growth in all regions. I'll turn now to Slide 10, free cash flow. Free cash flow for the quarter was $232 million, that's about 122% of net income. We continue to expect free cash flow conversion of about 75% for the full year, including the impact of the $300 million discretionary pension contribution that we made in quarter 1. We would expect conversion to be about 100% excluding that pension contribution. And that brings us to the final slide, which addresses our current outlook for the full year. As Keith mentioned, we've reduced the narrowed sales and earnings guidance. We now expect sales for the full year of about $6.2 billion. Think of that as a range of $6.15 billion to $6.25 billion, and that compares to the previous guidance of $6.25 billion to $6.45 billion. We now expect currency translation to reduce sales by about 3 points for the full year. Previous guidance assumed a 2-point decrease due to currency. Across the sales guidance range, there's about a $50 million negative impact from currency compared to the prior guidance. Excluding currency effects, we expect growth for the full year of about 6% to 7%. Previous guidance was 6% to 9%. We still expect segment margin to be a little over 18%. As I mentioned earlier, we're at 18.2% year-to-date. And we expect diluted EPS in the range of $5 to $5.20. As Keith mentioned, currency effects are reducing EPS across the guidance range by about $0.05 compared to the prior guidance. We continue to expect a full year tax rate of about 24%. And as I mentioned earlier, we expect General Corporate net expense to be about $90 million for the full year. With that, I'll turn it over to Rondi to begin Q&A.

Okay, great. Thanks, Ted. [Operator Instructions] Okay. So, Sonia, let's take our first question.

[Operator Instructions] The first question comes from the line of Steve Tusa. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: So the -- I guess, the margin in A&S was pretty good despite weaker-than-expected sales than I had. Can you maybe talk about that? And then it looks like in the fourth quarter, on the kind of decline in revenues, you're just basically assuming that there's a kind of 30% to 40% incremental to get to the 18% margin. Is that kind of how you're looking at it?

Well, let me take your first -- I'm sorry, Steve, on you second question, you're asking about Q4?

Yes, the Q4 guide looks like it's basically just a sales decline and then a decremental margin of like 30% to 40% or something like that.

Yes, so let me take the A&S question first. So A&S margins were up about 2 points sequentially. Even though reported sales were down slightly, there was positive organic growth, and that had some attractive conversion. We also had somewhat better mix sequentially. We've talked about the unfavorable mix in Q2. And the incentive comp that I mentioned also favorably impacted margins sequentially a bit. So I mean, that kind of explains the A&S margin performance in the quarter. As it relates to incrementals in Q4, especially when you get small sales changes and negative changes, the incrementals start to get a little funky. But basically, I would say if you think about the sequential performance from Q3 to Q4 that we're going to get a little bit -- at mid-point, a little bit of organic volume growth. And that's going to be offset largely by unfavorable mix.

Okay. And then one last question on that fourth quarter. How are you looking at this? Are you just saying, I mean, normal seasonality in the upturn is usually higher than what you've guided to. Obviously, if you look back over a 10-year period, there's some pretty weak seasonal moves, when things turned down. But are you kind of just assuming kind of normal seasonality with the hedge? Is there -- what exactly have you been seeing in kind of June and July that makes you kind of set that bar for the fourth quarter? And is that just the view of the macro or just curious as to how you set that?

Well, I think, at the mid-point, basically, what we're expecting is products to be kind of flat quarter-to-quarter, and then we're expecting kind of a normal seasonal plop in the Solutions business. But clearly, last Q4 was a much larger-than-normal increase. We're not expecting to see that same kind of increase this Q4.

And is that Solutions comp visible?

When you say visible, I mean, well, when you say invisible, I mean, think about -- whatever we're going to do in Q4 in Solutions is pretty much in the backlog at the end of Q3.

The next question comes from Scott Davis of Barclays.

You referenced, Keith, you mentioned project delays in 3Q increasing. Are there any common themes behind that? Like, for example, I don't think we've seen any decline, really, in Process, per se, from any of the other guys, but is it auto? Is it hybrid? Anything that you can kind of glean from that?

Well, I don't believe there's any one common theme there. If you look at what is happening, it's a little bit more regional in nature. In the U.S., we are seeing some project, I'll say, really front-log pushouts, particularly in paper and metals. The ongoing small project business is good in the U.S. So little different there in the fact that it's really the front-log pushout that we're seeing. Probably where the most significant changes are occurring, and all of this is based upon our expectations where, in particular, in Asia, we were expecting to see some acceleration of projects in the second half of the year, and that's not occurring. And so we're seeing both backlog and front-log pushouts in projects in Asia. We associate a lot of that with just the market conditions, the macroeconomic conditions, mainly in China and India, and the liquidity issues in both of those countries as well. And it just, in particular, in China -- we weren't expecting anything in India. But in China, we thought we would see that acceleration, and in fact, we have not. So from our expectation, it's been lower, even though we had growth in China. In Latin America, probably the biggest impact is what we're seeing in Brazil, and that's not so much -- in Latin America, it's not so much in the large projects such as the oil and gas and the mining projects, which tend to be very long-term investments, and those don't really move much at the end of the day. It's more in the shorter-term projects, particularly, in Brazil, where they're struggling with both the high interest rates and also the real currency that is making some of their exporting manufacturing less competitive. So that tends to be a little bit of color around what we're seeing in the project delays as we go forward here.

That's helpful. Keith, as a follow-up, just -- when you think about the upcoming election, I mean, your customers, particularly in the States, talking about the election as kind of a catalyst to delay projects and just wait and see what policy is going to be? Is that -- is there any impact there that you guys see as tangible?

It's hard to say what's tangible there. But I think as all of us know, the uncertainty that is existing at this point in time with what will occur at the end of the year or the start of the year, particularly in the U.S., doesn't create a lot of confidence for investment. And as I said, I don't think we have anything tangible, but we do hear that, that uncertainty is causing a little more cautiousness in their outlook and therefore, in their spending patterns and commitment patterns. So I think it is having at least some psychological impact at this point in time. And as people start preparing for the end of the year or the start of the year, it will be weighing on their investment decisions.

Next question comes from the line of Mr. Nigel Coe, Morgan Stanley.

Keith, you talked about some negative mixes occurring within A&S. Could you maybe just elaborate on that, please?

Yes, we talked about a different mix between last quarter and this quarter, which improved some of the margins. And that was really some less growth in our motion business, which is related more to some of the OEMs and, in particular, some of the OEMs in Europe, which are slowing, and likewise, associated with OEMs, some of our safety component businesses slowed for that same reason. They're very tightly connected together at the OEM segments. So that was the mix comment that I think Ted referred to in his commentary.

And then, if you look into 4Q and maybe beyond, I realize the visibility is quite low, but anything on the mix side that you want to highlight?

No, I think, from our perspective, at least, in Q4, we would expect to see a reasonable, consistent mix. And I guess you're referring to just A&S. But we do expect Logix to probably grow above the average in the segment, because we believe motion will still be a little slower, particularly with what we're seeing with respect to the German OEM machinery export expectations and what is going on in Italy. So I think, we're expecting to see probably a similar mix content in Q4 that we saw in Q3 for A&S. If we take it at a macro level, we're obviously expecting -- a company level, we're obviously expecting Solutions to be a higher content in our Q4 and, as Ted mentioned, that the predominant growth in the quarter will come from Solutions businesses that are already in backlog.

And Keith, you mentioned growing uncertainties caused partially by the election in the U.S. Are you seeing that uncertainty in the channel? Are you starting to see some more careful management of inventories?

No, in the U.S., in particular, and U.S. -- well, in North America, in particular, we have very good visibility in the channel behaviors, and we're not seeing any deviation in what we would expect for the normal volume levels that are occurring. And we continue to see appropriate both levels and behavior in the channel.

The next question comes from the line of Mark Douglass, Longbow Research.

Keith, can you highlight what Logix growth was in the quarter? And what are you expecting for the full year in Logix?

Yes, Logix growth in the quarter was -- organic growth was 3%, about the same as A&S organic growth with -- but for the full year, we would expect to see high-single-digit growth from Logix.

Okay. And then looking ahead with the growing uncertainty, I assume you're being -- at least, thinking about any possible measures as far as cost controls. Is it too soon for you to be thinking about that? Or just can you explain what you're looking -- what you're expecting for that, maybe into 2013?

Sure. Well, first, we are operating the business in a manner that's consistent with the guidance, which is basically that we're entering a slower growth environment. So we -- and with the limited visibility, as you said, but given the current trends, we do have all of our businesses and functions looking at what type of contingency plans they can put in place in the event that market conditions get worse. But at this point, we're still operating the business, as we're moving into a slower growth period. And we still want to make the prudent decisions based upon balancing financial performance with longer-term growth opportunities. So at this point, we're making sure that we're doing our -- what's prudent, which is to look at the opportunities, and we really want to watch what is going on in Q4 here to get a better picture of what to anticipate in fiscal year '13.

Okay. And then you haven't throttled anything back quite yet?

No. I mean, obviously, we slowed spending, just like the growth rates. And quite candidly, that's part of the reasons why we've been able to have a reasonable margin performance this year, even with the decline in revenue, I should say, the reduction in revenue growth. So yes, we are slowing our spending and we're not spending at the level we had in the plan currently.

The next question comes from Mr. Rich Kwas, Wells Fargo.

Keith, following up on an earlier question regarding regional trends with project pushouts. What's going on in Europe? What are you seeing there? You mentioned some other regions. Just curious to see what you're seeing in Europe, if it's taken a decent step back or what the color is there?

Well, in Europe, we're -- actually, we're very pleased with the organic growth. I mean, it's 3%. But the fact that we're still growing in a very, very tough environment is very encouraging for us, and we're very pleased with the team's work there to make this happen. We are seeing the slowdown in Western Europe. Some of the countries are seeing a much more difficult environment. As you would expect, Southern Europe is -- it's tougher than it was in the earlier part of the year. But we are seeing the growth in emerging Europe, and we see projects continuing to be moving forward. There's not really a slowdown with respect to -- particularly, oil and gas has been very strong. And also, some of the metals markets in the Middle East continue to be strong. And once again, these are generally large projects that don't get moved simply because of a short-term issue. They tend to be longer-term, decade-type investments, and they tend to continue to move forward. And we haven't seen any delay in that. In Europe, the delay is -- more of it has been in what I would call some of the consumer industries. Auto, as all of you know, is struggling more in Europe with the overcapacity. You've seen recent print -- recent articles about the taking offline of some of their capacity. And so we're seeing a little bit of a slowdown there. But Europe, in automotive, is probably not as strong for us as any other region in the world. So it's probably less of an impact to us. But along that line, tire goes pretty close with automotive, and we're seeing slowdowns there, which does impact some of the OEM activity in Europe. And then food and beverage, the consumer products areas are also starting to see more slowdown and pushout of projects. So that's kind of what we're seeing in the European front.

Okay, and then just a couple of housekeeping. On the Logix comment, is that high-single-digit growth rate organic or total? And then what was the Solutions book-to-bill for the quarter or at the end of the quarter?

The Logix growth is an organic growth rate, and the book-to-bill was 1 for the quarter.

The next question comes from the line of Jeff Sprague, Vertical Research.

Just a couple of follow-on thoughts. Your comment about kind of operating as if you're in a slow-growth environment was clear. I also wondered if you'd kind of put that, though, in context to your higher-level thought that kind of a normal cycle might have 2 more years to go. I mean, clearly, this one doesn't feel as normal. And I just wonder if you could draw some parallels to prior periods if you, in fact, see any parallels in the way your business and/or customers are acting relative to what you may have seen in the past.

Well, first of all, as I'm sure you've been thinking and understand is none of these ever are the same, so. But certainly for us, this feels more like a pause and a slowing of growth as opposed to a fundamental downturn at this point in time. And so, obviously, the most recent memory that we have is-- back in '08. And I think there's some meaningful differences than what we saw at that point in time. For example, back in '08, we had, at least in the U.S., we had 2 major car companies on the verge of bankruptcy. We had a very strong bubble in the housing sector, and we were getting close to but not yet in the financial crisis that occurred later in the fall. And at this point -- and today, we don't see any of those. And more importantly, most companies' balance sheets are very strong. So they have an ability to, I think, easier ride through a slowdown and yet continue to spend in the appropriate areas that make sense. So we really aren't, at this point, seeing similarities to '08 other than what we talked about a little earlier, which is there are some project delays. And while a lot of that is normal, we did see a little push-up of that, a push-up of that in our third quarter. But certainly, given the macro and political environment, at this point, we just feel that that's just a normal course of action that we would expect companies to be taking. So we're obviously very focused on Q4 and to get a better read of what's occurring, and that's one of the reasons we want to be careful with our spending at this point in time. But we're still expecting growth, and we are expecting that the cycle will continue, although we don't know the shape of it at this point in time.

Just following along on that. Were the trends in June similar to what you saw throughout the quarter or was there a meaningful change in June and early July?

No, there wasn't really a meaningful change. We had a very strong margin, as you remember, from the last call. And so April was a little weaker because of that. But the business progressed at an increasing rate through the quarter. Unfortunately, not at the rate we had anticipated at the last call. So we saw a continued growth through June. And certainly, what we're seeing in July is consistent with what we've outlined in the guidance. So really, no fundamental change other than the slowing of growth, particularly in some of the key emerging markets that we did anticipate. We talked about China accelerating. We're not seeing anything unique in India that we didn't expect. But China, not as fast a growth in recovery. And Brazil in a worse situation than we would have -- than we certainly had anticipated in the previous quarters. So other than those nuance -- not nuances, those areas, in general, just the slowing and just the rate of increase was different than we anticipated at the start of the quarter.

Just one other real quick one, and I'll get off. The kind of the okay performance in Europe, as you put it, decent, given the backdrop, do you think that in any way reflects your OEM machine builders beginning to benefit from euro weakness from an export standpoint?

No, I think, it's more of a -- I think, partially -- not partially, it is definitely the OEMs where our success is and why we believe we're outperforming. And that's -- and it's not so much because of the currency. Those types of -- that doesn't cause a reaction as quick in the marketplace as just the change of the rates in 1 quarter. There is a selling cycle. There is a build cycle that has to come into play and an order cycle that comes into that as well. So we wouldn't see that quick of a reaction. We believe that the performance in Europe is really because of what we've done in the last couple of years, to build and to focus on OEMs. And in particular, the success we see is driven less by the currency and more by the strength of exporting OEMs. And certainly, if you look at the performance of the machinery builders in Europe, the domestic market is very weak, and what has been supporting it in the last couple of quarters -- supporting the industry in the last couple of quarters has been exporting. And exporting to the U.S. and exporting to Latin America with a somewhat of a decline in the exports. Asia, particularly China, and the domestic market has weakened. So it's played to our strength, and more importantly, played to the areas that we focused on in the last couple of years. And we believe that's been one of the areas that we've been able to create share gain and one of the reasons why we've been able to continue to grow in a very, very difficult economy there.

The next question comes from Steven Winoker, Sanford Bernstein. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Just a first quick question on that -- those margins, on the incrementals. To what extent that price and cost contribute to the incremental performance? I know you talked about organic growth, but if I sort of think about separating price cost versus productivity versus just leverage on the fixed cost base.

I mean, price was positive in the quarter. And I would say, year-to-date, we're pretty much on track to hit our expectations of about 1 point. Cost is probably running a little bit favorable year-to-date, and I would say increasingly favorable as we proceed through the year. Now some of that we expected at the beginning of the year. And it really reflects just some easing of commodity costs. I would say price cost performance in total is probably about neutral for us against the guidance that we talked about last quarter. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And do you expect that to continue for the rest of the -- for the fourth quarter?

We do. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then maybe just stepping back a little bit here. I know you're waiting for fourth quarter results to give you more certainty about how to proceed. But if you think about -- should you continue to see global deceleration, and you think about the playbook this time versus, I guess, '09 when you were down something like, what, 19% or 20% organically and the EBIT or operating profit was down more than, I guess, 60%, how do you think about that? Should you -- not that bad, but should we start to see that further deceleration? And you think about that margin versus growth investment trade-off. What should investors expect is a difference this time in terms of how you manage that trade-off?

Well, quite candidly, I don't think you should expect any difference. We definitely understand the need to respond to the short-term environment that we're operating in. On the other hand, we also understand that, as a technology company, we need to continue to make investments, particularly in our core platforms and in our customer-facing resources. And while we may not add there, we certainly want to maintain at a very meaningful level the investments that we're making, particularly in emerging markets, where we have to continue to build our capabilities and, certainly, in the core technologies that our customers are counting on. But more importantly, that's what gives us the competitive differentiation. And quite frankly, it's one of the reasons we came out of the last downturn as strong as we did. So we want to make sure we continue to maintain the proper investment levels and deal with the current economic situation appropriately, but not at the expense of prolonging the recovery and the benefits of new products and new customers in the upturn. And quite frankly, we never experienced the speed and depth of the decline that we saw in 2009. So the decrementals that you talked about were probably much higher than, I guess, I would call normal, although, as I said earlier to one of the questions, I don't know if there is a normal anymore. But we certainly are not expecting, anticipating or even thinking that we're in that type of a situation current. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Right, okay. And maybe just a follow-up to the Logix growth point. You talked about 3%. How does that compare to your expectations and penetration and share gain, given the broader market challenges? Is it on pace and the trajectory's similar to -- you're still tracking to more than $1 billion this year?

Yes, we believe that organically, we'll be above -- at least, with our -- what's baked into the forecast and the guidance we just gave you, we would expect to be slightly over $1 billion in Logix for the fiscal year. So we're still there on an organic basis, and we're growing that business at the rates, and in some of the markets, where we can get information, we believe we're outperforming the underlying markets. And that certainly is something that we pay very close attention to. As you know, we've introduced a number of new products this year. It's still very early in those introductions, but we're very pleased with the expansion of the platform and certainly look for that to be a help not just in the fourth quarter, but certainly as we go into fiscal '13. So that's part of the investments I talked about earlier that are important that we continue to make. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: And Keith, sorry, just to follow that, you're not seeing a major competitor or accelerated competitive response anymore to Logix? There's not -- you're not seeing anything picking up on competition?

No, I think the competitive environment stays pretty much the same. And we think with the ongoing investments that we expect to continue to stay ahead of any of our competitors. And just to remind you, when I talk about the 3% this year, we had greater than 30% Logix growth in Q3 of last year. So it was a tough comp, but 3% is still not what we expected, quite frankly, or what we plan for, even in a tough comp environment. But it was very, very difficult on a quarter-over-quarter basis.

Next question comes from Richard Eastman, Robert W. Baird. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Yes, Keith, could you just speak -- you mentioned the book-to-bill in the Solutions was 1. I'm curious was -- how were the bookings on the Process side of Solutions? Is Process a big piece of Solutions, and is the momentum there continuing?

Yes, we don't have a specific breakdown in the book-to-bill on Process versus others. But we certainly, in general, see a continued growth in the process applications and areas that we work in. So we see it's a growth across the regions. And as I just said, the process continues to grow above the company average. And we're not seeing anything in the front log or the order trends that would indicate that, that process will not continue to be the higher rate of growth piece of our Solutions business. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then just a question. When we look at the sequential growth from Q2 to Q3, and you've addressed this, that things slowed down or maybe didn't quite hit the expectations for re-accelerating in some markets. On the A&S side, it would seem that the below-norm seasonal growth would be a function of Brazil, as you mentioned, and also Europe OEMs or machine builders. On the CP&S side, the below-seasonal growth, is that largely a function of Solutions in China? Is that where we're seeing the pushouts of deferrals?

I think 2 -- I think, yes. And in addition to that, Solutions would be in Latin America. So it would be Latin America and emerging Asia, in particular, China, would be the 2 largest areas that would drive your Q2 to Q3 comment.

The next question comes from Mr. Shannon O'Callaghan from Nomura.

Keith, maybe just on the 7% organic growth in the quarter, can you give us a little flavor on the -- how that broke down by verticals, which were above and below? And then thinking into some slowing in the 4Q, any particular ones you think will be the drivers of the slowdown?

Okay. In the quarter, the best-performing verticals, so best-performing would mean above Rockwell Automation average, would be automotive, oil and gas, metals and mining. If you look at the ones that would be about at our average, the verticals would be tire, life sciences. And if you look at the one that probably grew below the Rockwell average, it would have been the consumer industries on a global basis. As far as the outlook, we would expect transportation, in particular, auto, to continue to be a healthy grower. And we like the front log that we see in transportation and, particularly, automotive. And we see it across many regions with the exception of EMEA. The heavy industries there, we would expect to see some performance flattening. We think oil and gas will maintain the strength that it has. But as I mentioned earlier, we're seeing some forward sentiment in metals and mining that appears to be more cautious now than it was previously, although we don't see that as a big impact in Q4. And then the consumer is basically flat. We think the spending there is really focused in emerging markets and then process optimization in some of the mature markets. So that's a little bit of a feel for the forward-looking picture on our verticals.

Okay, that's great. And then on China, I mean, it continued to actually get, I guess, a little better, just not as much as you thought. In terms of thinking about what fell a little short, any particular areas there? And in your comment that you still expect it to improve, just not in your fiscal fourth quarter, any evidence of -- that in terms of your front log or things that you have visibility into that? Or is it just more of a macro comment on China stimulus?

It's a macro comment on China, not just the stimulus, but also on the work that they're doing to ease interest rates for lending. So we expect the liquidity situation to get better as well as the stimulus. And so I think as far where were the areas that we saw the softness, well, I think for the quarter, it was really in a couple of activities. And the most important was probably the stimulus did not ramp up or did not get executed as fast as we thought, particularly in some of the municipal projects, which tend to be the area they go to quickly to drive investment and improve spending. And the other area was simply the liquidity issue. Many small-, mid-sized customers, distributors, system integrators, it was tough for them to get money. And I think that is what caused some of the project delays that we referred to that impacted us in China. So it was the small- and mid-sized companies and then projects and a little bit associated with a slow implementation of the stimulus that got announced earlier in the year.

The next question comes from Winnie Clark, UBS.

So on the purchases. You repurchased 1.6 million shares in the quarter. I think that puts you a little bit under 2 million for the year, or actually, I think, potentially a little bit over. You had previously indicated you expect to repurchase roughly 3 million for the year. What -- how should we think about the pace of repurchases going forward? Is that still kind of your guidance, or is there a potential to pick up the purchases in that fourth quarter?

Well, I think the easiest answer is yes. I mean, we're about, I think through the end of June, we're about 2.3 million shares repurchased. And I'd say we're on track to hit the 3 million that we talked about last quarter.

Okay, so -- but yet you don't think that you'll be above that 3 million, that's probably just on track?

Well, we never in the quarter talk about what we might repurchase in the quarter.

Okay, fair enough. And then if we think about being in the slower-growth economy, how should we think about the growth potential of the automation market and then for Rockwell, specifically, in that kind of environment?

Well, we certainly believe that automation outgrows the underlying market. And we don't believe that's any different in a slowing economy. Certainly, we believe there's more emphasis on productivity and cost reduction in a slowing economy than there, obviously, is in capacity expansion. And so we've been very successful in both the U.S. and Western Europe, 2 mature markets that require ongoing cost reductions, ongoing productivity improvements as well as ongoing regulatory compliance. So we think safety, we think compliance, we think cost reduction and productivity plays very well in a slowing economy. And certainly, we think emerging markets is where we will, again, see ongoing spending for capacity expansion and new investments and, I should say, new capacity, simply because of the ongoing expansion of the economy, as well as the growing middle-class and disposable income. And certainly, if you look at historical, the '06 to '08 period, we still grew at an average of 7.5%. So we -- I think we believe we can outgrow the market. And if it's a slower-growth environment, we still expect to be able to grow at a faster pace. And, quite candidly, that's, I think, one of the beauties of the automation market. It's an area and an industry that companies need what we do not just in good times, but in bad times as well. So we think we're very well positioned with the portfolio of our products solutions and services to be able to support customers across a business cycle.

Okay. So that concludes today's call, Sonia, I think. And I just want to thank everyone for joining us, and we will sign off.

Thank you. That concludes your conference call today. At this time, you may disconnect. Thank you.