Rockwell Automation Inc (ROK) Q3 2025 Earnings Call Transcript

Rockwell Automation Inc (NYSE: ROK) Q3 2025 Earnings Call dated Aug. 06, 2025

Corporate Participants:

Aijana Zellner — Investor Relations

Blake Moret — Chief Executive Officer

Christian Rothe — Chief Financial Officer

Analysts:

Scott Davis — Analyst

Andrew Obin — Analyst

Andy Kaplowitz — Analyst

Julian Mitchell — Analyst

Chris Snyder — Analyst

Nigel Coe — Analyst

Steve Tusa — Analyst

Presentation:

Operator

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. Later in the call, we will open up the lines for questions. [Operator Instructions] 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.

Aijana Zellner — Investor Relations

Thank you, Julianne. Good morning, and thank you for joining us for Rockwell Automation’s Third Quarter Fiscal 2025 Earnings Release Conference Call. With me today is Blake Moret, our Chairman and CEO; and Christian Rothe, 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 on our call today will reference non-GAAP measures. Both the press and charts include reconciliations of these non-GAAP measures. A webcast of this call will be available on our website for replay for the next 30 days. For your convenience, a transcript of our prepared remarks will also be available on our website at the conclusion of today’s call.

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 our SEC filings.

And with that, I’ll hand it over to Blake.

Blake Moret — Chief Executive Officer

Thanks, Aijana, and good morning, everyone. Thank you for joining us today. Before we turn to our third quarter results on slide 3, I’ll make a couple of initial comments. Rockwell had another good quarter as we return to year-over-year sales growth. We had a diverse set of strategic wins in the quarter across discrete, hybrid and process industry segments. I’ll highlight some of these in a few minutes.

We’re also making good progress on our journey to the segment margin goals we introduced at our November 2023 Investor Day. This is largely due to very good progress on our enterprise-wide productivity programs, even as more of the year-over-year savings shifts from the initial SG&A reductions to direct material cost and indirect services cost savings and operational efficiencies. We have already achieved our full year goal of $250 million in year-over-year productivity, a quarter earlier than we anticipated, and I’m proud of how our organization has operationalized our ambitious productivity and continuous improvement targets.

Price cost also remains favorable, including the net impact from tariffs, which was minimal in the quarter. Importantly, we intend to take bold steps to continue our progress. Over the next five years, we will invest over $2 billion in plants, digital infrastructure and talent to grow share, build resilience and expand margins. The United States will be the largest beneficiary of these investments, which are primarily capex. These investments will complement our robust productivity programs to drive our global growth and margin expansion goals.

We’ll go into more detail on the scope and milestones tied to these investments in November, but it will include thoughtful implementation of automation to drive plan efficiency, talent to fuel our highest return offerings and an AI first business system to provide unmatched employee, partner and customer experiences. This is right in the wheelhouse of our expertise and we’ll be taking you and customers along with us on this journey. It’s an exciting time to be a part of the Rockwell Automation story.

Turning to our third quarter results on slide 3. While most customers continue to prioritize their spending on the productivity and efficiency of existing capacity, some are advancing their strategic plans for larger capex projects, including greenfields. Similar to last quarter, our total company book-to-bill was about 1.0 with year-over-year orders growth in the Americas, EMEA and Asia. Q3 sales were above our expectations. Reported sales were up 5% and our organic sales were up over 4% year-over-year with currency contributing less than a point of growth in the quarter.

Similar to last quarter, product sales were better than some of the longer cycle businesses, which tend to be more capital intensive. It’s likely there were some customer pull-ins in the quarter, and we’ll talk more about that in a minute. Annual recurring revenue grew 7% in the quarter, below our expectations. Double-digit growth in our cloud-native software business was offset by relative weakness in recurring services, mainly driven by delays in cybersecurity investments.

From a business segment standpoint, our Intelligent Devices organic sales were up 1% versus prior year with double-digit growth in products more than offsetting the year-over-year decline in our longer cycle configure to order business. We leveraged our differentiated intelligent devices portfolio to secure some new capacity wins, both in greenfield and brownfield applications.

One of these wins was with Freshpet, a leading pet food manufacturer who is looking to expand their fresh food production capacity with a new processing plant in Ennis, Texas. Freshpet chose Rockwell for our standardized designs, product interoperability and a differentiated motor control center offering to help accelerate time-to-market at this greenfield.

Another strategic MCC win in the quarter was also in the food and beverage space with Incobrasa industries, a Brazilian soybean processing and biodiesel manufacturing company that is expanding in the United States. Rockwell was selected Incobrasa as official automation partner for their new state of the art facility in Central Illinois.

ClearPath sales were up double-digits, but continued to be affected by capex delays in automotive. We’re making good progress in integrating the auto AMR platform with our overall roadmap for autonomous operations and to improve profitability even in a period of subdued customer capex investment.

Software and control organic sales grew 22% year-over-year, driven by strong growth in our hardware business. Logic sales were up over 30% versus prior year and up low-double-digits sequentially. Our SaaS business grew 10% year-over-year with strategic wins across Plex and Fiix. One of our important software wins in Q3 was with Bean Therapeutics, a leader in manufacturing of cell and gene therapies.

Factory Talk Pharma suite MES software will help this customer automate their production process and ensure quality control as they continue to expand their commercial operations in this fast growing vertical. Another competitive win in the quarter was with Hancock Iron Ore. We are excited to be partnering with HIO as they take the next step-in their digital journey.

Working closely with our Calypso team, this customer is adopting our advanced AI-driven predictive maintenance solutions like Guardian AI and Data Mosaics to enhance reliability and performance across their operations. This engagement is a testament to the strength of the ongoing relationship and our mutual focus on building the future of mining together through co-innovation.

Lifecycle Services organic sales declined 6% versus prior year, but were largely in line with our expectations given the difficult year-over-year comparison. Book-to-bill in this segment was 1.06 and was above 1.0 across all the contributing businesses. As we expected, customers continued to delay larger capital projects in Q3, waiting for more clarity and certainty around the impact of trade and policy on their input cost and volume.

Rockwell’s segment margin of 21.2% and adjusted EPS of $2.82 were both above our expectations, mainly due to higher-volume and strong execution on our cost reduction and margin expansion actions.

Let’s move to slide 4 to review key highlights of our Q3 industry performance. Our discrete sales grew 10% versus prior year, driven by growth in automotive and e-commerce and warehouse automation. While most of our automotive customers continued to delay their capital investments, we had a large number of wins in the quarter. One of these brownfield projects in Q3 was to help Hyundai Motor Group expand their hybrid electric vehicle production in Georgia as they transition from EV only to a multi-energy production model, which addresses evolving consumer demand. Another important automotive win this quarter was with Lucid Motors, who chose our Factory Talk MES for their state of the art greenfield facility in the Kingdom of Saudi Arabia.

E-commerce and warehouse automation sales were up 30% year-over-year with continued strength across all customer segments. In addition to our core automation offering, we’re seeing more interest in autonomous material movement as our customers realize the benefits of our auto platform. Whether it is basic station to station movement or handling complex payloads, Rockwell is uniquely positioned to help scale AMR fleets to the operational needs of our customers and integrate with the rest of their automation.

Moving to our Hybrid Industries. Sales in this segment increased high single digits versus prior year with good growth across food and beverage, home and personal care and life sciences. I already talked about some of our strategic wins in Food and Bev earlier on the call. We continue to see strong year-over-year and sequential growth at our packaging OEMs as they continue to invest in their next generation machines for both food and beverage and HPC end users.

Sales in our life sciences vertical were up high single digits in Q3. While tariff uncertainty has caused a number of end user project delays, we continue to build a strong pipeline of projects with both machine builders and end users. Our strong software and digital services capabilities continue to differentiate us in the fast growing GLP-1 space. This quarter, Rockwell was selected by Thermo Fischer to help accelerate production of GLP-1 injectables for new capacity expansion by cutting their MES implementation timeline in half.

Turning to Process Industries, our sales in this segment were down low single digits. From a broader process standpoint, energy, chemicals, mining and metals are all facing pressure from weak global demand and volatile commodity prices, which is hampering their ability to invest. With that said, each end market is selectively redirecting capital to their highest strategic priorities, including meeting their sustainability and modernization goals.

In energy, we do have both the technical portfolio and market access to participate in an all of the above strategy to meet accelerating capacity needs. And we had examples of both traditional fossil fuel and renewables wins in the quarter. One of these wins was with a global energy technology company where our PlantPAx process control solution was chosen for their hydroelectric project in India, as part of the country’s push for energy security through reliable and renewable electricity. We also secured an important oil and gas win with a leading Middle Eastern national oil company who chose our Sensia joint venture for the region’s most strategic automation and cybersecurity upgrade project with significant recurring revenue potential.

Moving to slide 5 and our Q3 Organic Regional Sales. Once again, North America was our best-performing region in the quarter and we expect it to be our strongest region for the full fiscal year 2025.

Let’s now turn to slide 6 to review our fiscal 2025 outlook. To be sure, we continue to operate in a volatile environment. It’s good to have the US tax bill in place, continued low unemployment and to see some progress on tariff negotiations. However, US trade policy with some important countries remains uncertain and geopolitical risk remains elevated. Accordingly, our top-line outlook for the second half of this fiscal year is largely unchanged with a slight increase to our prior guide due to tariff related price increases and favorable currency. We do see a modest shift forward in the calendarization of our sales between our fiscal third and fourth quarters. Given the continued trade uncertainty, we think some customers have pulled forward orders from Q4 to Q3 in order to mitigate risk and secure critical components.

We now expect our reported and organic sales growth for the year to be in the positive 1% to negative 2% range. The midpoint of our guide assumes low single digit sequential sales growth in Q4. We expect our annual recurring revenue to grow high single digits this year. We continue to expect our full year segment margin to be about 20% and we are increasing our adjusted EPS outlook to be $10 at the midpoint. We continue to expect free cash flow conversion of 100% in fiscal ’25.

I’ll now turn it over to Christian to give more detail on our Q3 and financial outlook for fiscal ’25. Christian?

Christian Rothe — Chief Financial Officer

Thank you, Blake, and good morning, everyone. I’ll start on slide 7, third quarter key financial information. Third quarter reported sales were up 5% versus prior year with minimal impact from currency. About three points of our organic growth came from price. While price cost was favorable, about one point of our price realization was from tariff-based pricing, which was neutral to EPS. Benefits from cost reduction and margin expansion actions and price realization more than offset higher compensation.

Adjusted EPS of $2.82 was above our expectations, primarily due to the beat on the sales line as well as segment operating margin. Adjusted effective — the adjusted effective tax rate for the third quarter was 15.2%, above the prior year rate of 13.3%, primarily due to lower discrete tax benefits. We continue to expect a 17% ETR for fiscal 2025. Free cash flow of $489 million was $251 million higher than the prior year. Free cash flow conversion was 153% in the third quarter.

Slide 8 provides the sales and margin performance overview for our three operating segments. While Sales and Lifecycle Services came in as expected, performance in Intelligent Devices and Software and Control exceeded expectations with product growth more than offsetting the decline in our configure to order businesses. All segments executed well on our cost reduction and margin expansion targets, helping absorb the year-over-year increase in compensation expense. As a reminder, we did not have any incentive compensation costs in the same quarter of last year.

Intelligent Devices margin of 18.8% decreased by 140 basis points year-over-year against one of their most difficult comps of the prior year, primarily due to the higher compensation expense I just mentioned. Given the small year-over-year dollar change in sales in this segment, decrementals are not as meaningful this quarter. We continue to see good price realization in this segment.

Software & Control margin of 31.6% was up 800 basis points versus prior year, driven by double digit volume growth and strong price realization. The segment saw year-over-year incrementals in the high-60s.

Lifecycle Services margin of 13.3% was down 600 basis points year-over-year. A mid-single digit sales decline against record segment margins that had no incentive expense in the prior year drove the decrementals in the quarter. I want to take a moment to point out the sequential movement we saw in each of our segments.

Intelligent Devices had incrementals that were in the 30s from Q2 to Q3, reflecting revenue improvement, cost reduction and margin expansion execution and strong price realization, partially offset by tariff costs, compensation and FX. Software & Control sequential incrementals were in the mid-40s with strong volume, partially offset by higher compensation.

Lifecycle Services saw small sequential dollar changes in both sales and segment earnings with higher compensation being the driver of lower margins. Overall for Rockwell, the incremental margin on the sequential sales growth was in the low-30s. This rises to the mid-30s, if you exclude tariff-based pricing and cost, which again was EPS neutral.

The next slide 9 provides the Adjusted EPS Walk from Q3 fiscal 2024 to Q3 fiscal 2025. Year-over-year, core conversion was close to 60% and contributed $0.35 to our EPS on the 4% organic sales increase. Software & Control was the primary driver of both sales and earnings growth in the quarter, where we saw margin expansion on continued improvement in logic sales.

Pricing was strong for the company and we continued to fund new product development with company R&D at 6% of total revenue. We saw excellent execution on our cost reduction and margin expansion actions, which were above our expectations, resulting in a $0.60 tailwind. You’ll see a $0.60 impact from compensation. Our Q3 outperformance and higher guidance for the year brings with an increased incentive expense. As I said earlier, we had no annual bonus expense last year. We expect about $0.30 of compensation cost in Q4. Full year compensation expense, which includes merit and bonus is expected to be about $230 million. Currency was a $0.15 EPS headwind as the timing and movement of exchange rates, particularly in some of our foreign produ\ction locations such as Mexico and Poland created transactional headwinds. All other items resulted in a $0.09 net headwind.

Moving on to the next slide 10 to discuss our updated guidance for the full year. We narrowed our sales guidance range this quarter, raising the midpoint of our reported sales guidance to a negative one-half of a percent sales decline year-over-year. This reflects a slight increase from our prior organic sales guide, one-half of a point driven by tariff-based price increases in the second half.

The other portion of our sales midpoint guidance increase comes from currency as we now expect the full year FX impact to be neutral to sales and a $0.10 headwind to EPS. Our segment operating margin guidance of about 20% is unchanged. Last quarter, we talked about low single digit sequential sales growth in Q3 and high single digit sequential growth in Q4. With our updated guidance, we expect Q4 will be up low single digits sequentially after a high single digit sequential increase in Q3. Segment operating margins exceeded expectations in Q3. For Q4, we expect margins to be similar to Q3 on slightly higher revenue with unfavorable mix offsetting the sequential volumes leverage.

We are updating our adjusted EPS guidance to a range of $9.80 to $10.20 or $10 at the midpoint. The EPS guidance increase reflects our strong operating performance and continued progress on our cost reduction and margin expansion actions. A few additional comments on fiscal 2025 guidance for your models. Corporate and other expense is expected to be around $155 million. Net interest expense for fiscal 2025 is expected to be about $140 million, and we’re assuming average diluted shares outstanding of about $113 million shares. Our share buybacks in Q3 were approximately 500,000 shares in the quarter at a cost of $123 million. As of June 30, approximately $1 billion remained available under our existing share repurchase authorization.

Moving on, I want to expand on a few topics. First, let’s talk about tariffs and our assessment of possible pull-in activity. We continue to expect the EPS impact of tariffs for fiscal ’25 to be mitigated through resiliency actions and price increases. The EPS impact in the third quarter was close to zero, while about one point of our sales growth in Q3 was attributable to tariff-based pricing. With regard to pull-in’s, as Blake mentioned, we are not seeing a notable inflection in underlying customer demand. We have a strong process to identify and address obvious attempts to buy ahead of announced tariff-based price increases and we have canceled some orders as a result. That being said, we think it’s possible that pull ins accounted for at most 2 to 3 points of our growth in the third quarter. Our thesis for the second half remains intact and we believe any pull-ins that may have happened were largely just Q3, Q4 timing differences.

Second, our cost reduction and margin expansion initiative reached a major milestone this past quarter. This program was initiated midway through our last fiscal year with some very ambitious goals, $100 million of cost savings in the second half of fiscal 2024 and another $250 million of savings in fiscal ’25. We exceeded our goal and delivered $110 million of savings in fiscal ’24. This year, we met our full year target of $250 million of savings in only three quarters. All told, that is $360 million in structural cost savings achieved over five quarters. Our team has performed extremely well for the past year and a half, and we are all grateful for their efforts. Well done.

At our last Investor Day, we shared our Rockwell operating model. One objective is to operationalize the excellent work of our cost reduction and margin expansion teams. This bridges the gap to take the program from an event and turn it into a way of life. The team is prepared. Now that we have achieved our targets, we are going to transition the tracking of our cost reduction and margin expansion program into core in our reporting structure because by operationalizing this work into our day-to-day, it is now becoming part of our core.

Finally, let’s talk about the next few years and the art of the possible as well as some of the areas where we have developing programs. As Blake shared earlier, we intend to invest $2 billion over the next five years. This is inclusive of opex and capex for plants, digital infrastructure and talent. To be clear, a portion of this will include brick-and-mortar. We will share additional information at our Investor Day in November, but know that each element of this program will have a clear ROI aimed at enhancing competitiveness, expanding margins and positioning Rockwell for long-term growth. We believe in the power of industrial automation and digital transformation. That’s true for our customers, it’s also true for us. This investment reflects our conviction.

With our progress on price, productivity and strong operating performance, we are on a good path to reach the segment margin targets we introduced in 2023. We are now focusing on long lead time actions that will help us define and drive the next phase of our operating margin expansion. That’s this program, investing today to help expand margins in the future and to help us achieve the next set of goals.

Some other items for your long-term model, capex as a percentage of sales, which has historically hovered around 2%, could range between 2.5% to 4% in any given year as we make ROI based decisions on brick-and-mortar, digital infrastructure and capital equipment. R&D spending as a percentage of sales will remain targeted at around 6%. We believe this is important to support our growth engine.

A couple of notes on upcoming tax changes: first, as we’ve mentioned in the past, we will be become subject to BEPS Pillar Two in fiscal ’26. Current framework could cause our effective tax rate to increase 2 to 3 percentage points in fiscal ’26, resulting in an EPS headwind; second, as it relates to the new US tax bill, we don’t expect it to provide significant savings to Rockwell, primarily due to our international structure and minimum tax laws.

We do believe, however that accelerated depreciation can drive investment by our small and medium-sized customers. This is a sweet spot for Rockwell, particularly with the help of our partners. We delivered three solid quarters so far in fiscal ’25. That doesn’t happen without great execution throughout our organization, great customer relationships and a strong partner network. Those efforts are truly appreciated. Let’s have a solid finish to the year.

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

Blake Moret — Chief Executive Officer

Thanks, Christian. We’re happy to see a return to year-over-year growth, including an improving outlook in some of our largest discrete and hybrid verticals. The leverage from this growth will complement our continued focus on cost discipline, execution and margin expansion. I’m excited to supercharge these efforts by further capturing the benefits of automation and digital transformation within our own operations. It’s hard to believe, but this year’s Automation Fair and Investor Day are only three months away. We returned to McCormick Place in Chicago the week of November 17 with Investor Day activities on November 18th and 19th.

We’re looking forward to showcasing the best solutions and partner network in the business, including software-defined automation and AI-enabled technology from sensor to software, integrated intelligent devices, robotics and digital services. You will hear from customers about our differentiated value and from management as we review progress on our goals, details of our internal investments and inorganic priorities. I’m looking forward to seeing you there.

Aijana, will now begin the Q&A session.

Aijana Zellner — Investor Relations

Thanks, Blake. We would like to get to as many of you as possible, so please limit yourself to one question and a quick follow up. Julianne, let’s take our first question.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Scott Davis from Melius Research. Please go ahead. Your line is open.

Blake Moret

We can’t hear you, if you’re.

Scott Davis

I’m sorry I was I was muted guys. It’s been a long earnings period. But good morning to you.

Blake Moret

Good morning.

Scott Davis

Anyways. I only had one coffee. But hey, can we talk about the capex stuff because that’s a big number for you guys. Historically, you haven’t spent a lot of capital. What — kind of why now and you could — one-side of it might be, you could say, are you behind the investment curve and so you have to catch up the other is are you playing off end? So how do you guys look at it?

Blake Moret

Scott, good morning and let me start by saying this is solidly on offense. So we are very encouraged by the progress on our productivity programs over the last year and a half. And while we continue to be focused near-term on getting to those margin goals for each business segment and overall for the company.

You’ve asked us in the past, so what’s next? What else can we do to continue to drive this? And we’re taking decisive moves to be able to address just that in ways to, of course, address our ongoing capacity needs, but to continue that push to expand margins. And Christian has talked about the willingness to invest capital in the service of expanding margins and that’s really how you should think about this. And we’ve talked about our plants, our talent and our digital infrastructure, I want to also make it clear that we’re not beginning from a standing start. We’ve already done this in a number of our operations, but this is accelerating that. And we’re encouraged by what we’ve already seen in some of the places within our plants that we’ve done these things that we’ve digitized, we’ve added additional automation. We’ve used our own simulation tools to improve layout.

And typically, we see the results show up in labor productivity, being able to do more with a finite amount of human resources. We see it in energy consumption. We see it in faster time to confidence. There’s a number of benefits that we’ve seen in our clients. We certainly are talking about this every day with customers and now we’re doing it at scale. And I could go through the other benefits in each of these areas. We’re going to spend some time on this in November at Investor Day. But now is the time because these things have a certain ramp time and we want you to understand how as you hear about individual investments, how they fit together as part of this cohesive program.

Christian Rothe

Maybe a couple of items that I’ll add to that the — not all of this $2 billion is incremental. That is — a portion of that is what’s already built-in our run rate and our current spending levels that we have on capex, for example. And so don’t look at it all as incremental. We are — including some of the run rate in that. The second part is that these programs, as I mentioned, are all going to be ROI-based and that our hurdle rate for — these programs is in the double digits, but obviously, those are risk adjusted based on the program and the project. But for sure, we are looking for each of these to be to be giving us an ROI and hopefully over time also helping us to expand our margins.

The last part actually is around the margins and just to underscore what Blake said, we do see a path already to getting to the 23.5% target that we have — in place from November 2023 at our Investor Day that we put in place in the corridors for each of the segments. This is really about that next horizon. It’s about thinking about where can we go over the long-term with the business at Rockwell. And as we think about when we’re going to achieve that 23.5%, what’s that next target going to look like, And we have to create some more runway and this is a great opportunity for us to do that.

Blake Moret

Yeah. I think about this as the current programs that we talk about each call get us to that 23.5% operating margin. These are programs that get us through that — those margin corridors.

Scott Davis

Okay. That was a lot. So I’ll pass it on, [Indecipherable] respect for my peers. Thank you guys. Best of luck.

Christian Rothe

Thank you.

Blake Moret

Thank you.

Operator

Our next question comes from Andrew Obin from Bank of America. Please go ahead, your line is open.

Andrew Obin

Hi, yes. Good morning. How are you? I know that you’re going to talk about it at the Analyst Day, but you did sort of highlight some investment headwinds, some tax headwinds. How do you think about just generally about growth into next year and this recovery basically and operating leverage trump this or does that mean structurally lower growth for the next couple of years?

Blake Moret

Yeah. Certainly the top-line growth that we’ll be prepared to talk about in November is a really important piece of the equation. I’ll say, we’re happy to have returned to year-over-year growth in Q3 and we intend to do everything that we can to continue that. We’re encouraged as we talked about with some of the improvement in some of the key verticals within particularly discrete and hybrid, which are areas that are important to us. And we are committed to continuing to make progress towards those margin expansion targets, regardless of what top-line does and we’ve certainly contemplated the potential for the tax headwind that Christian talked about as we say that. So we’re continuing to forge through and we feel like we’re holding some good cards in terms of momentum that allow us to mitigate the impact of some of these other things.

Christian Rothe

Yeah. And just to build-off that a little bit more, the we do expect we’re going to get price next year, the cost reduction and margin expansion programs that we’ve been working on, while they are going into our core as we operationalize them. We still continue to expect that those programs are going to be giving us a yield. Obviously, the comps get more-and-more difficult as we — continue to build out these programs and that’s okay, but we are expecting that we’re going to get margin expansion next year as well. And we’ll give you more detail as we get into next quarter on the earnings call.

Blake Moret

Yeah. And I guess just one last point on that, Andrew, is the tariffs that have been announced including the more recent ones, we feel like we have strong mitigation plans as we did this year for those tariffs as we go into next year.

Andrew Obin

And just taking a step back and looking at your broader restructuring program, right, I think you sort of indicated that there’s going to be greater emphasis on continuous improvement versus large restructuring programs, but we did finish quarter early. And if you take a step back, how has the progress — where did you find the progress the easiest, if you look at direct material spend, sort of supply-chain SKU rationalization, rationalization of transport cost? And where do you feel you’ve sort of discovered you can push a lot harder?

Once again, I appreciate that, I’m sort of asking you for an Analyst Day preview, but at the same time, you did end up sort of much more efficient on cost cuts than I think we expected. Thank you.

Blake Moret

Yeah. I think part of the — and I’m sure Christian will have some additional comment on this. I think part of the feature of the program that allowed us to get there even quicker than we expected was the breadth of the surface that we went after in terms of cost savings. We certainly had initial savings coming from largely SG&A cost reductions. But we moved pretty quickly into other structural savings and I’m happy with the way that we saw reductions in what we pay for direct material. That will only improve as volume continues to amplify the per unit savings from that indirect services and manufacturing efficiencies, I would say, to your question, where do we think we can get more manufacturing efficiencies are a big opportunity and that’s why it’s an important feature of the program that we introduced today.

Christian Rothe

Yeah. And I think to answer the question and essentially just to build-off of it, headcount reductions are always, frankly, they’re hard choices to make, but those can happen faster. And so the way this program developed is not unlike what you would expect. But first of all, starting the SG&A with some headcount reductions and then it expanded into indirect spend, which takes a little bit longer to go after, but we went after that. Then you start going after things that take a little bit longer lead time and not too bad as far as things like the mode shift and thinking about how we’re moving materials around, then we get into product redesigns and working on sourcing.

And then we’ve now transitioned into more operational excellence in the factories. We’re doing a lot more around things like warehouse automation, things that again take a little bit longer lead time. And so all those are outstanding. And I think our experience is that, as Blake said, it’s really about doing all of the things and continue to do them well.

And importantly, in this program, as we operationalize it, I think we all are well aware that cost can creep into an organization. if you are not vigilant. And so the team really needs to — we all need to continue to make sure we’re vigilant around making sure those costs don’t creep back-in and we continue to make good progress.

Andrew Obin

Thank you.

Operator

Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead. Your line is open.

Andy Kaplowitz

Hey, good morning, everyone.

Blake Moret

Good morning.

Andy Kaplowitz

Blake or Christian, you reported book-to-bill of 1x, which suggests you’ve continued to see slow sequential improvement in bookings as you guided earlier this year, but you did mention the 2% to 3% of pull-ins in Q3. So is the current environment still supportive of underlying bookings continue to slowly improve from here?

And then you mentioned a little more greenfield activity, Blake, from your customers and logic sales are obviously up a lot. So do you think that’s evidence of more reshoring activity or maybe more capex related activity despite delays. How would you — any more color would be helpful?

Blake Moret

Yeah. — let me start by saying the projects that we’re attracting, we’re seeing delays but not cancellations. People are still looking at these as opportunities to increase their resilience to make market share moves. In general, among our customers, they’re just being subject to a higher level of scrutiny. People are looking again and again at the business case to make sure they have a good handle on their cost, what the demand picture is and so on. That being said, when projects do pass that hurdle rate, they are being greenlit and we’ve seen greenfields and brownfields.

Overall, we expect to see a higher intake of orders related to new US capacity in fiscal year ’25, and we expect that number to go up again in fiscal year ’26. We’re tracking it. We’re having a good success rate as we look at these and co-ordinate our coverage around the world. So I’m encouraged by that. And as I mentioned, we saw some nice development in particular, discrete and hybrid verticals, which of course is our strength. We’ve been in automotive for a long-time and we had some nice wins in both basic control as well as in software there.

Food and beverage, our single biggest vertical. Over half of that business is really concentrated through machine builders, especially packaging machine builders and some of our new products are helping us win new business there. So we saw some good results in the quarter. We didn’t show it on the slide, but Home and Personal Care, we’re also seeing some spend there. So we think we’re in a good spot and we’re looking forward to as hopefully additional certainty frees up some of that capex spend, but we’re not waiting. We’re continuing to be on offense both in terms of winning every order that is available out there as well as continuing to expand our margins.

Christian Rothe

On the book-to-bill question, yes, we’ve been running around one the last couple of quarters, which is what we were expecting it was going to do as we got into a more normalized environment. So you can read that to be that the backlog is generally flattish. And as we get into Q4, we do have a little bit more seasonal shipments that happen in our project business, especially in lifecycle. So we do give that visibility around book-to-bill and lifecycle. It wouldn’t be surprising if their book-to-bill went a little bit below one. But generally the demand environment, the — and what we’re seeing from orders is keeping on with that pace of what we’re seeing on the shipment side.

Andy Kaplowitz

Appreciate that. And then you sound arguably a little more positive about getting to your — medium-term target of that 23% segment margin. But maybe if we could just focus on your largest segment for a second of Intelligent Devices. How do you think about the margin potential in Intelligent Devices? The segment still in the high-teens, but as you guys know, it’s delivered low-20s on lower revenue in the past. So what would it take to improve the margin there? Is it kind of what you guys talked about, more factory work, SKU reduction?

Christian, maybe any thoughts there, can you turn the corner in that segment as early as FY ’26 towards significantly higher margin?

Blake Moret

Look, we are absolutely committed to the overall margin target as well as the 22% to 24% corridor that we’ve talked about specifically for Intelligent Devices. We’re encouraged that the last couple of quarters have seen sequential improvement in margin percentage, but we certainly have lots more work there and we’ve identified specific areas. I’ll just — I’ll mention a few and Christian will have some others.

First of all, I mentioned that we saw overall good progress in reducing the cost of what we pay for direct material. And that’s especially important for intelligent devices because it is a big business with by far the largest SKU count. So as we increase unit volume, it’s amplified across a broad range of all of those products. The pricing on the long tail of SKUs that we’ve talked about over the last year is especially important for intelligent devices, again, because they have such a diversity of SKUs in that offering. Project recovery, so the configure to order business is particularly leveraged to any uptick in capex spend and we’ll see some improvement there.

And then specifically ClearPath. I mentioned it in my prepared remarks, we’re seeing double digit growth. We’re making progress on profitability, but there’s more work to be done there.

Christian Rothe

Yeah. I think, Blake, you covered really a lot of the same items I would have talked about. I mean, in the end, it’s really — it’s about hitting the individual aspects of this business while at the same time continue to do operational excellence really well. So there’s definitely a pathway to it. We definitely have a longer-term plan that we’ve gone through with the team that shows that we do have the ability to continue to get leverage in this business.

Andy Kaplowitz

Appreciate it, guys.

Blake Moret

Thanks, Andy.

Christian Rothe

Thank you.

Operator

Our next question comes from Julian Mitchell from Barclays. Please go ahead. Your line is open.

Julian Mitchell

Hi, good morning. Maybe I just wanted to start with the revenue. I’m sorry, if it’s a bit of a hodgepodge[Phonetic] of a question, but I understand, Blake, you mentioned the 2% to 3% pull-forward of sales into Q3, but you also referenced a handful of times project delays?

And then, if I look at slide 13, you know you’ve got nine markets laid out there and I think the outlook is lower for six of them versus April. So I’m just sort of trying to understand, you know how significant, let’s say, were the pull-forwards in Q3 versus the project delays effect? And again, the sort of weighting of the market updates on slide 13 looks perhaps more negative than your overall tone?

Blake Moret

So let me — break that down just a little bit further. So the potential pull-forwards that we highlighted are really in the product side. So if people are going to make a pull-forward purchase, they’re going to do that in the product area. And we thought that while again, we have good processes to avoid taking orders that are obviously opportunistic, let’s say, to avoid a price increase. We think it’s prudent to give allowance for the possibility that we did see some pull-forward in our product orders.

The delays are more on the project side and you see that primarily in the configure to order portion of Intelligent Devices as well as in Lifecycle Services. So that would be the distribution now. Aas you go through the different verticals, automotive had a good Q3. We returned to good year-over-year growth. Again, I would look at that as a little bit of that prudence that we don’t want to get too far ahead of ourselves in saying this is the beginning of a trend, but there was definitely some nice wins within automotive. There’s a huge installed base that has to be serviced — to be able to continue to keep production running at a good rate.

The other vertical that isn’t shown in the exhibit is Home and Personal Care that had strong growth year-over-year in the quarter. So you look at that and I’d say it’s a largely balanced view. And as Christian said, we think that the demand picture hasn’t changed too much, but that’s somewhat constructive on the product side and again with continued delays on the projects.

Julian Mitchell

That’s very helpful. Thank you. And then I just wanted to return to the topic of the operating margins. So understand the confidence in the sort of 23.5% medium-term aspiration. But just trying to understand, say the next 12 months or into next fiscal year, with the — your puts and takes, so the main tailwind might be aside from volumes, incentive comp. It looks like that’s like $1.90 headwind to EPS this year, I think. Maybe just confirm that. And then perhaps there’s a headwind to margins from some of these higher investments. So when we roll all that together, does that sort of 35% plus operating leverage placeholder, is that intact largely the next 12 months or does it get sort of pushed around by investments or incentive comp flipping round?

Christian Rothe

Yeah. Maybe I’ll start and then Blake can jump into to add any additional color. But we remain committed to the 35% incremental margin flow through. We still believe that we can make these incremental investments, if there are going to be anything that’s going to show up incrementally, again, we still believe that we can do it within the context of the rubric of a 35% flow through.

When we talk about — you brought up the incentive comp side. Just know that bar chart in the way we reconcile it, that is total comp. So that includes merit as well as well as incentives. So your — the number that you’re thinking about is probably a little bit high. I would say that generally right now, where we are is a fairly normalized number. And so when we think about next year and if we’re at a normalized number this year that we’re not expecting that it’s going to be too much of a delta for us to deal with as we go into our planning for ’26.

Blake Moret

Yeah. And I would say additionally, Julian, the project spend, capex and opex, we’re in control of that. And so we have the ability to meet around what we’re spending in capex and opex so that we make sure we don’t get in the way of those of those previously-announced targets and we continue to make good progress towards that. I would also say that the majority of the incremental spend is in capex. So in opex, a lot of that is reprioritizing dollars that are already in run rate to the areas that we talked about.

Julian Mitchell

That’s great to hear. Thank you.

Operator

Our next question comes from Chris Snyder from Morgan Stanley. Please go ahead, your line is open.

Chris Snyder

Thank you. I wanted to follow up on the pull-forward commentary. It seems like from the opening remarks that this was more of a revenue pull-forward and not an order pull-forward. So if you could just speak to that. And then just any color you could share on the visibility or kind of methodology as to how you arrived at this? I think intuitively, it makes a lot of sense that customers would try to get ahead of price increases, but we really haven’t heard this across the rest of our coverage. Thank you.

Blake Moret

Yeah. Sure. Chris, we want to be prudent about this. And as we said that there aren’t specific examples of orders that we could point to say that is a — pull-forward. As I mentioned, this is mainly in the product area. So with orders and shipments being pretty much on top of each other, book-to-bill across the company of about one, they’re close to the same. What we’re not seeing is customers that have longer lead time projects already in house in our backlog saying, hey, we want it quicker or that we want to delay it. So I should make that distinction as well.

And we talk about this because we’re not seeing specific indicators. We look at our distributor inventories and there’s nothing unusual going on there. They’re placing orders pretty close to a factor of one based on what their orders are that they’re receiving and the orders are placing on us, which is healthy. We continue to pull our machine builders and we’re not seeing any evidence that they’re building up inventories of product. We look at our own behavior. So there’s no specific indicators that there’s significant pull-forward. We just want to be prudent as we navigate through a volatile time.

Operator

Our next question comes from Nigel Coe from Wolfe Research. Please go ahead. Your line is open.

Nigel Coe

Thanks. Good morning, everyone. We’ve a couple of grounds. Just want to clarify, Christian, your comments about comp next year because I think you know, I’ve always thought about normal comp as like 175 and I think we’re going to be at 260 this year. So it looks like there could be a nice tailwind for next year. I mean, just want to make sure that’s the right thinking. And — but my other question is really around the [Technical Issues] on for investment. Number one, that’s not going to happen to on either. It seems — like I just want to. And then maybe touch on revenue. It seems like it’s more more capacity in general, but anything else that these investments will provide?

Blake Moret

Sure. I’ll start with the comp one and around the opex capex portion. So on the compensation side, Nigel, just to again to underscore this, that compensation number that you see in there. And again, we gave a view for the full year at about $230 million that full year view includes both merit and incentive comp. And so you gave a historical number that — I think it’s in the ballpark that might have been a little bit high on the number that you gave, but that is — that would have been more purely incentive comp and not being included in the merit side. So again, if you just — were to separate those out, we feel like the incentive portion is normalized at the moment.

Christian Rothe

Yeah. And I would say, look, we are proud of having gone through a year with, let’s say, flattish overall growth and have returned to a more normal overall spend on compensation. That was something that was important for us to get to this year. And I think it does set us up well as we go into next year.

In terms of the $2 billion, yeah, we’re going to get into more detail, but I think directionally, you’re — in the ballpark of that split. And as I said, the majority of the incremental spend is going to be on that capex side in the service of margin expansion. To be sure, there is some additional capacity that this helps with. We do believe that we’re able to do these things with a net number of rooftops staying relatively flat. I think that’s an important concept that we’re not going out and building a lot of incremental rooftops without retiring others. So we think we have lots of opportunity for additional efficiency in our existing facilities as well as you know some greenfield investment as well. But the majority of the opex spend in these areas is really more about reprioritizing to the areas of highest return.

Aijana Zellner

Julianne, we’ll take one more question.

Operator

Certainly. Our last question will come from Steve Tusa from JP Morgan. Please go ahead. Your line is open.

Steve Tusa

Hey, thanks for letting me in and I appreciate it.

Blake Moret

Yeah.

Steve Tusa

It sounds like you guys are super busy, no vacation this summer. So you’ve earned the IC bump for sure. Lots going on and good execution. Just a quick question on kind of the updated pricing outlook for what you booked this quarter and then what you expect for the fourth quarter and how that will trend into next year?

Blake Moret

Yeah. So on the pricing side, we would have started the year, in fact, we did in the Q4, Q1 call talking about we expected price realization to be around our historical number about 1%. Obviously, the last couple of quarters, we’ve had price realization more in the 3% range. I think last quarter, I would have talked about a 1% to 2% for the full year.

Now I think it’s very comfortable saying that we’re going to be at 2% plus for the full year this year, which would include a decent portion that happens in the fourth quarter. Keeping in mind that part of that bump is happening from tariff-based price realization, which is not really high value price realization because it’s simply there to offset some costs.

Steve Tusa

And then for next year?

Blake Moret

For next year, I’m not ready to actually give — a full update on that, I will tell you that I think the — outside of the tariff-based price realization, which is going to be whatever it is, that generally we’re feeling pretty good about our ability to continue to realize price in that the organization is continuing to find areas and opportunities for us to continue to go after it, not necessarily just from list to list, but also finding other ways to enhance realization on prior pricing actions.

Steve Tusa

Okay. And then sorry, just one last one on this US investments you were talking about. You said you booked a few of these in ’25. You think they’re going to — there’s a few in ’26. How kind of close are we to some of these things shaking loose, like is it as simple as just getting like the headlines more calm around tariffs or like you guys seem just a little bit more cautious around like the timing of some of this stuff hitting. I think every company is talking about these big pipelines and opportunities. Could this be a first half of next year thing or if it comes, it’s really going to be more of a second half of next year thing from an orders perspective?

Blake Moret

We have a big funnel and we think that the orders we receive will be significantly larger related to capacity next year than this year. We haven’t calendarized first half versus second half. But in general, what people are doing is they’re looking at getting to a certain level of cost certainty with respect to their inputs and obviously tariffs are a portion of that. So think about the automotives. They’re thinking about what is their demand look like and think about, for instance, the chemical industry and oil and gas, you know more commodity-oriented metals, what’s their demand looking like.

They’re also looking at general risk and so with machine builders wanting to go to their suppliers and get certainty on pricing — as they themselves are putting out quotes that need to be firm to their end users for a period of time. So those are kind of one click below the general uncertainty that people are looking for getting additional confidence in and we’re seeing some of those projects coming out. We booked some big ones across multiple industries and we talked about a few of them and we expect that to continue in Q4 and into next year and hopefully things settle down with respect to tariffs. We’ve got a tax bill in place and that helps. That’s going to provide some benefits, particularly for small and medium-sized manufacturers, as they see things like bonus depreciation helping them. But some of these other areas with tariffs, I think will accelerate the release of some of these big capacity orders.

Steve Tusa

And that is just on a percentage of your business, correct? The new capacity percentage, it’s like 15% to 20% that’s kind of how you describe that kind of size of that mix when you talk about big new capacity orders?

Blake Moret

Yeah. I mean agree, we haven’t talked about a specific percentage of capacity, but it’s a little bit more than it would have been in the past. And some of that is with the new offerings that we have, things like production logistics and AMRs are largely tied to capex. So it’s a little bit more than it was in the past, but we’re still largely a flow company.

And I guess the other thing I would say is that whereas a lot of the new capacity initially was in areas like semiconductor and data centers, now we’re seeing many more of those orders across areas that Rockwell has higher share in. So think about life sciences and food and beverage and so on.

Steve Tusa

Yeah, great color. Thank you [Ends Abruptly]