Thank you for 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 Steve Etzel, Vice President of Investor Relations and Treasurer. Mr. Etzel, please go ahead.

Good morning, and thank you for joining us for Rockwell Automation's first quarter fiscal 2018 earnings release conference call. With me today is Blake Moret, our Chairman and CEO; and Patrick Goris, our CFO. Our results were released earlier this morning, and the press release and charts have been posted to our website. Both the press release and charts include reconciliations to non-GAAP measures. A webcast of this call will be available at that website for replay for the next 30 days. 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 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 Blake.

Thanks, Steve, and good morning, everyone. Thank you for joining us on the call today. I'll start with some key points for the quarter, so please turn to Page 3 in the slide deck. We had a good start to fiscal 2018. Organic growth was just above 5%, which was in line with our expectations. Continuing the trend we saw last quarter, growth was again broad-based across the regions. From a vertical perspective, Heavy Industries performed well and were up high single digits in the quarter, including good growth in oil and gas, chemicals, semiconductor and metals. Consumer was about flat. Transportation was weaker than we expected with Automotive down about 5%. From a regional perspective, the U.S., our largest market, grew over 5% organically. We saw good growth in Heavy Industries, partially offset by softness in the Automotive and Consumer verticals. Oil and gas grew double digits. EMEA was up 5%, a continuation of the good growth we saw in the fourth quarter. Sales to OEM machine builders remained strong. In Asia, we saw a double-digit growth in China. India was about flat, and Japan and Korea were down. Recall that Asia was up 20% in Q1 last year, so certainly a tough comparison. Latin America grew 8.5% led by Heavy Industries and Consumer. I'll make a few additional comments about the quarter. Logix was up 6% compared to last year. Our Process business continues to do well and was up 12% year-over-year organically. This includes the results of our MAVERICK acquisition, which is now included in organic sales. Adjusted EPS was up 12%, reflecting solid operating performance. Patrick will elaborate on our first quarter financial performance in his remarks. Let's move on now to our outlook for the balance of fiscal 2018. Global macroeconomic conditions remain solid based…

Thank you, Blake, and good morning, everyone. Before I talk about our quarterly results, let me make a few additional comments about U.S. corporate tax reform. The new tax law not only leads to a lower expected -- effective tax rate going forward, but also provides us with greater flexibility to deploy the cash we have, regardless of where it is generated. Like many other U.S. companies, we've had a large amount of excess cash held outside the U.S. We have initiated the repatriation of that cash, a process that will go beyond the current fiscal year. As Blake mentioned, our priorities for capital deployment remain the same. Funding accelerated organic growth remains priority #1 followed by acquisitions, then the dividend and, finally, share repurchases. In Q1, we recorded provisional charges associated with tax reform totaling about $480 million. These charges include $386 million for the deemed repatriation and $94 million to reduce the value of net deferred tax assets. We excluded the $480 million charges related to tax reform from adjusted EPS, And updates in future quarters to our estimates of these charges will also be excluded from adjusted EPS. With that, let's move to Slide 5, Key Financial Information, first quarter. As Blake mentioned, we had a good first quarter of the fiscal year with reported sales up 6.5%. Organic growth was in line with our expectations at 5.3%. Currency translation contributed 2.5 points to sales growth, a bit less than we expected. And the fiscal 2017 Q4 divestiture reduced sales by 1.3 points. Segment operating margin was very strong at 22.4%, up 120 basis points compared to last year. A margin tailwind from good organic growth was partially offset by higher investment spending. Margin performance in the quarter was a bit better than we expected, as overall…

Before we start the Q&A, I just want to say that we would like to get to as many of you as possible. [Operator Instructions]. Thank you. Operator, let's take our first question.

[Operator Instructions]. Your first question comes from Richard Eastman with Robert W. Baird.

Blake, could you kind of maybe elaborate, if you would, on maybe the abrupt deceleration on the expectations around the Transportation, if you could just speak to maybe whether it's geographically or other?

Yes. I don't think we would call it isolated to a single geography. Although we certainly saw weaker-than-expected performance in the U.S., it's not purely projects, some of which have been pushed out. It's also the MRO spend. We have a very large installed base and so that's a significant portion of our Automotive business in any given quarter. We continue to see new program commitments, particularly in EV. And you've seen some of the news from some of the big brand owners about their large investments in that area. But it's hard to predict the timing of whether some of the business that we're already tracking will come in, in 2018 or push out to 2019. So I would call it, mixed results, but it's -- it includes some MRO as well as program softness.

Okay. And then just as a follow-up question. Patrick, could you just kind of speak to -- you had mentioned in the segment profit commentary that investments in the first quarter came in a little bit light of expectations, could you just perhaps maybe put a number on the shortfall there to plan? And then also does that come back in the second quarter and actually increase a bit with your commentary around more cash flow, more flexibility on investments?

Rick, it was a few pennies of EPS. And our assumption is that some of that will come back in the balance of the year.

Your next question comes from the line of Andrew Kaplowitz with Citigroup.

This is Vlad Bystricky on for Andy. So you highlighted growth led by Heavy Industries, including oil and gas. So can you talk about, within oil and gas, how that market is evolving, whether you're seeing larger projects start to come back in oil and gas specifically and then more broadly in Heavy Industry, whether you're seeing accelerated large project activity?

Yes. So in oil and gas, the strength and growth is a mix of what we might characterize as more flow business as well as some large projects starting to hit. So I think we are seeing that across segment profile of the various types of business. There are other parts of Heavy Industries that are also strengthening. So we're seeing it in metals, for instance. Pulp and paper in several industries. We include semiconductor in Heavy and that continues to be at high levels of spending.

Okay, that's helpful. And then can you maybe just give us a little more color on orders during the quarter? Did you generally see a continuation of, I think, you talked about high single-digit order growth in 4Q? And did you see any change in order trajectory as the quarter progressed?

We saw a little bit of softness at the very end of December. I will say that January orders -- or business has started in line with guidance.

Your next question comes from the line of Josh Pokrzywinski with Wolfe Research.

Yes. So I missed part of the initial comments. I'm on another conference call. But I guess, any comments or any feedback from customers so far on how accelerated depreciation or a write-off there drives more spending? It sounds like if through January, your order rates are in line with guidance, you're not really seeing that acceleration. Is there any pause or kind of pipe -- a pipeline of project accumulation that's still ongoing? Maybe try to calibrate that for us.

Sure. I think there's a substantial amount of optimism in the market, particularly among U.S. manufacturers, but broad-based across many verticals. And that optimism, whether it's in the treatment of capital investments or lower tax rate to be more competitive worldwide, there's a lot of things to be optimistic about. It's too early to quantify those benefits. So we need a couple of points to be able to draw a line and to be able to come up with a magnitude of the potential impact on additional spend on the part of our customers. But the mood is definitely optimistic.

And just a follow-up on the order commentary from last quarter. I think, even the last question, I think high single-digit order rates coming out of Q4, unusual for Rockwell as a company to talk about kind of consolidated order rates, but I've always thought of you as a shorter-cycle business. And clearly, organic growth was less than high singles, Is there some pipeline building here or backlog that get you -- gets you guys particularly excited? How should we think about that high single-digit pacing out to the business?

So when we talk about the strengthening in Heavy Industries, Heavy Industries is biased more towards our solutions business, services and solutions, which is a longer-cycle business. So in that business, some aspects of it may have, on average, a 5- or a 6-month lead time. So we get a little more visibility for that. And because Heavy Industries are up and we talk about a strong book-to-bill in the quarter, we are seeing increased backlog.

Your next question comes from the line of Noah Kaye with Oppenheimer.

This is Kristen on for Noah. Just wanted to follow up on some of the conversations that you're having with customers, particularly with your auto customers. Are you talking with them about what's going on with NAFTA? And do you see any risks to your customers from that point of view?

No, we're not hearing our U.S.-based manufacturers talk about spending with us being impacted as a result of that. Obviously, we're seeing some very large spending being announced by some of our good U.S. customers. I think Ford made an announcement a week or 2 ago, and we'll continue to see that biased around EV. Outside of North America, I can say that earlier this month, I was in China meeting with automotive customers and I was very encouraged. I was talking to indigenous Chinese companies. So these weren't JVs or U.S. companies servicing the China market, wanting to talk to us, a lot in the EV space, both in terms of brand owners as well as Tier suppliers. And there's obviously a lot of activity going on there, a lot of new players. And I'm happy to see that we're covering all of them.

That's helpful color. And then just wanted to follow up on the A&S margins, really impressive there. I was wondering if you could give us a little bit more detail on some of the puts and takes. What's the natural leverage of that business off of organic growth versus how much are you really allocating toward reinvestments there?

Yes, so you're correct. The margin is at 30%, and that's a very high level. We expect it actually to be the high point for the year for this segment. It's really a function of organic growth offset by investments. As we intend to increase some of the investments during the balance of the year, we think that the segment margin there for the balance of the year and the full year will be a bit below the margins we saw in Q1. In terms of incremental margins for that segment, I would recommend you look over a longer period of time over several quarters as to what the incremental earnings has been or the earnings conversion for that segment. If we talk from an overall company perspective in incrementals of 30% to 35%, earnings conversion at mid-single-digit organic growth, we would usually expect earnings conversion a little bit better than that within Architecture & Software.

And your next question comes from the line of Joe Giordano with Cowen.

This is Tristan in for Joe. I just wanted to go back to the incremental CapEx in software that you mentioned in your prepared remarks. Is that for a specific product or specific industry? Could you just elaborate on this?

You refer to the incremental investments that Blake mentioned in his comments?

Yes, specifically in software where you're investing.

Sure. So in software, a couple of the main areas of software investment and these aren't new, so these are strengthening existing investments. We talked a lot about the new value from The Connected Enterprise as including information software. And so we certainly see increased investment there, but also in our core. In our core would be the control, the configuration tools as well as the visualization software. That's an important area for us, as we have a common software environment for all the different types of control, whether it be discrete or process or hybrid. And we continue to invest heavily in those areas to simplify the experience throughout the life cycle. So whether it's in the design part of a control project, they operate or the maintain, those are important areas that, we think, we provide differentiation and we intend to continue that.

That's very helpful. And then if we could just shift on Logix. It looks like it was the slowest growth since 4Q '16, if I'm not mistaken. Is there any reason for this? Any comments there?

I would start out by saying that Logix still grows above the A&S average. The other thing I would point out is that we've had a really good year in Logix last year. It was up 10% year-over-year for the full year. And in Q1 of '18, we grew 6% on top of 8% organic growth, which we delivered in Q1 of fiscal '17. So I think continued good growth in Logix becomes -- become a little bit tougher.

Your next question comes from the line of Rich Kwas of Wells Fargo Securities.

Yes. I jumped on late, but just a couple of quick follow-ups on the order slowdown in December. Any particular verticals that you would cite as being more significant than expected?

Rich, this was at the very end of December, the last week or so of the year. It was just slower than what we expected. It was in the U.S. No particular vertical.

No particular, okay. And then on the auto commentary, Ford is changing their plans around electrification and devoting a lot more investment and CapEx to electrification over the next few years. In terms of your thoughts on what you're seeing in terms of the slowdown, anything attributable to kind of just shift in plans and that maybe there's a push or delay? Or do you think it's maybe early stages of something more fundamental? Just curious.

Yes. I think we continue to see the basic backdrop of softened SAR, so there is certainly a reduced growth in the overall units. On the other hand, we see the mix of the brand owners continuing to be strongest in their highest-profit products, so the trucks and so on. And that's good for us, as well. EV and the number of new suppliers, the number of new models envisioned, that's an offset to the general reduced growth in the raw number of units being produced. It's hard to say how those will end up balancing, but what we're guiding to is about flat for auto for the full year.

And maybe to add to that, that's compared to fiscal '17 where auto globally was up over 20%.

Right. So some of it's comp-related, right?

Yes. Auto was up over 10% Q1 last year.

If there are no more questions, I'll turn the call back over to Steve Etzel.

Okay. That concludes today's call. Thank you all for joining us.