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Rockwell Automation, Inc. (NYSE:ROK)

February 21, 2013 10:35 am ET

Executives

Keith D. Nosbusch - Chairman, Chief Executive Officer and President

Theodore D. Crandall - Chief Financial officer and Senior Vice President

Analysts

Scott R. Davis - Barclays Capital, Research Division

Scott R. Davis - Barclays Capital, Research Division

Okay. Let's move on to Rockwell. And representing Rockwell today are CEO -- Chairman and CEO -- I don't want to jip you on your title, Keith Nosbusch; and CFO, Ted Crandall. I think most of you know Rondi sitting up in the front row as well.

Rockwell's an interesting story. It's funny, today, I was just saying in the last session, if you all weren't here I'll repeat that yesterday, most or the vast majority of the companies that were in attendance, there was about 18, not a tremendous amount of debate around the stories. There was a few outliers, but not a tremendous a of debate around the stories. I think, this morning, the highlight, so far, has been -- attendance has been a little bit larger in the sessions than last year for this morning's companies. And there's a fair amount of debate whether it be SPX that we just had or GE or 3M. A lot of debate. There's notables bulls and there's notable bears and, I think there's really active dialogue around the positives and negatives. And I think Rockwell fits right into that. We are supporters of the stock. We're recommending Rockwell and many times on pullbacks with enthusiasm. Largely it's a result that we do believe in the automation cycle. We do believe that it will be an extended cycle in that there is a tremendous amount of not only pent-up demand, which I think pent-up demand is a lousy investment thesis, but actual catalyst to really drive that demand higher. And whether it's over the next 24 months or whether it takes -- or it's the next 5 years, I think is worth the debate. And obviously, the magnitude of that recovery is of great debate. And the timing, of course, because Rockwell is a company that is known for being fairly cyclical. Investors respond -- well, I remember the stock ranged between kind of, call it, $20 and $85-or-something last cycle, which is a crazy amount of volatility for a company of this quality and proven management. But I remember, really when it was a $20 stock, we were contemplating -- I mean, this was when the world was falling apart, so there was a lot of cheap stocks, but we were contemplating upgrading the story so at the time we had a neutral and a really smart investor spent 30 minutes telling me how things were falling apart and how it was going to go to $15 and kind of talked us out of adopting a more bullish counter-consensus view and then, I think, we finally capitulated when the stock hit, what about, $50, guys, or maybe it was $45. But we certainly didn't capture the bottom, although we would have liked to.

But we're here. We're supporters of the name. We gave these guys a little bit of a hard time in the conference call by putting more cash to work, and I apologize for being overly aggressive on that front. It's not just you guys, it's kind of everybody. It's an occupational hazard.

But you know, Rockwell does have very high returns, high margins, high returns in capital, generates a lot of cash, doesn't have a lot of balance sheet debt. And so there's a lot of cash optionaility in this story that we'd also think could be of value to shareholders, too, over the next several years.

So, I think, as it relates to today, and things that, I think, are topical to discuss is: one, the timing and magnitude of a global recovery in automation because I think, 2012, we saw a bit of a pause out there on the investment side; and then if you think in terms of this most quarter's report from Rockwell, I think some of us were really surprised in how weak China came through in the quarter, down about, I guess, 13% in the quarter, which was a surprise to us given that we had just been in China and all signs really from other players that we met with were fairly positive.

So, okay. Let's kind of start with that. Let's talk a little bit about how Rockwell's positioned to outgrow its market and has done so. If you look at the market share data over the last 10 years, Rockwell has gained share, particularly in what we would classify the hybrid or more kind of processed light-related industries. They've done a fantastic job in certain product lines like drives, for example, where Rockwell, even most recently, has been gaining share.

So we want to talk a bit about that, and I think we want to address the cash opportunities here and what Rockwell can do to either further consolidate the industry, if there are such opportunities or return cash to shareholders, either be a dividend or buybacks.

So maybe the way to start, Keith and Ted, is give a state of the union and now that we've -- we're a few weeks removed from the quarter and catch us up on what you're seeing out there and any signs of life in global geographies.

Keith D. Nosbusch

Sure, Scott. And thanks for the opportunity to be at the conference with you today.

As we see the current environment, we continue to see the stabilization of the markets in really many of the geographies. We talked about it on our earnings call. The U.S. continues to perform at a very solid level. Latin America grew the most for us this last quarter and we were very pleased to see continued -- or I should say the renewed growth back in Brazil, which is something that had a very weak 2012 for us, but certainly is an important piece of the broader Latin America economy.

When we go to Europe, it's really a mixed region for us. We have the emerging part of Europe, which, for us, would be Eastern Europe, Russia, Middle East and Sub-Saharan Africa. That grew double digits for us, and we expect to see continued positive growth in the emerging markets. The Western Europe, or mature Europe, is a different story where it's very mixed: Southern Europe, very weak; and Germany, U.K., stronger positions. And certainly, we believe that EMEA has seen the worst of the recession at this point and we don't expect it to get any worse from here, but it is not going to be a robust growth environment in Western Europe for the fiscal year.

We go to Asia. Scott mentioned China in particular. I would say Asia has been a surprise for us so far this quarter, I should say this fiscal year. The last quarter, it was very interesting from the standpoint of we had growth in mature Asia and negative growth in emerging, led mainly by China and India, the 2 largest markets. And we expect China will be much better in our second half and we see that from the activity that is taking place in the market today as well as some of the changes that have gone on with the liquidity environment and the government stepping in and improving that situation as well as the effect of a much smaller, but still meaningful stimulus program that they initiated a little over -- almost a year ago.

So we see China coming back in the second half of our fiscal year. India, a different situation, continue to struggle and we don't see a significant improvement throughout our fiscal year there. We knew we would have a weak start to our year because of the strong shipments we had and the reduction of our backlog in our fourth quarter. So the first quarter was not really anything unanticipated. We think we'll have a similar situation in our second quarter and then stronger growth in our second half. And as Scott said, this is a little different cycle than what I would say traditionally has occurred. And we certainly believe there's still growth coming in this cycle, but we're in a prolonged pause at this point and I think the timing is still what is uncertain in everyone's mind.

Question-and-Answer Session

Scott R. Davis - Barclays Capital, Research Division

So one of the big debates and I do want to -- since we've got such a large audience and one of our larger audiences of the last couple of days, I want to get to the audience response questions as well. But I think one of the big debates out there in automation land is in a world of rising labor costs and really past a what I would call kind of a 20-year time period where companies have been taking capital out, and now you might be walking into a next 20-year stage where companies are back putting capital in. I mean, what kind of signs or evidence have you seen from guys? I mean, we have the anecdotes. The Emersons of the world have come out and said they need to re-automate. Other companies that -- smaller companies have said similar comments. But we haven't necessarily seen it from either you guys or your competitors in your order books. But what are the signs out there that you see, particularly when you have C-level conversations, very senior-level conversations, with your competitors of -- yes, this is going to be a -- as we transition off SAP, it's then going to be automation or as we transition away from putting in fresh rooftops, it's going to be going back and re-automating old plants. I mean, is that real or is this just something that we're all hoping is real?

Keith D. Nosbusch

Well, I think, it varies by geographies. And certainly, in the mature markets, there's not going to be a lot of greenfield investments. A lot of it will be brownfield and modernization, and I'll come back to that in a second, particularly with respect to the U.S. For developed -- developing markets, emerging markets, it's really all greenfield at the end of the day and we don't see any slowdown in that for a couple of reasons: the continued growth and development of the middle class, particularly in Latin America, and to a large degree, China and the Asian emerging markets. They're going to demand more home, personal care products, packaged food and beverages and this is going to generate a growing consumer goods market, which is a very strong market for Rockwell Automation and we see that as a long-term secular growth story for our business. And its one that we're very well positioned in and it plays to our strength, not just with our portfolio of capabilities, but also with the OEM community that we've worked very hard to grow the last 4 to 5 years. So we see it really helping in both of those dimensions.

Coming back to the U.S., I think the real potential opportunity in the U.S. will be around energy and the continued -- well, if it's allowed to continue, it could be a real resurgence in an industry that has really shrunk over the last 20 to 30 years. And it will be brownfield but it will be major brownfield enhancements particularly along the entire Gulf Coast where most of the existing infrastructure exist. And this is really in the downstream chemical industries. And with the cost of gas and the resurgence of the existing oil fields, this is an opportunity of historical -- potentially historical perspective if it's allowed to continue. And this has the opportunity to allow this company to be -- a country to be energy-independent. It's an opportunity to develop manufacturing at a much stronger rate than previously. We could have the lowest energy costs in the world, which means that it can develop a lot of the higher energy-intensive industries that left for the high costs previously. It could bring some of that investment back into the U.S., which is still one of the largest markets in the world. So I think the longer-term play is really around all of the derivatives that come from gas and oil production, which is why oil and gas today is growing at the rate it is in the U.S. it's mainly because of upstream production and transportation and storage activities. And if it's allowed to progress through the normal supply chain cycle, you're starting to see the plans being put in place for some ethylene plants, for some ammonia plants. But it's really that next phase after those that opens up additional opportunities for expansion of manufacturing and all the benefits that, that would bring the U.S. economy.

Scott R. Davis - Barclays Capital, Research Division

Keith, when you think about it, this may be kind of a difficult question to add -- or answer. But when you think about the opportunity set of Rockwell 10 years ago versus now and let's just say a refinery or ethylene cracker or anything, I mean, is there any way to think about what percentage of the total automation spend you can actually legitimately bid for now versus 10 years ago?

Keith D. Nosbusch

Well, I mean, it is a tough one to answer because I would come at it from what we viewed as that we've been able to expand our served market over the last decade and I think that's probably the best way and then we can go down any specific vertical and talk about that and maybe in greater detail. But in general, we believe with what we've done in the expansion into the process industries, the expansion of what we can do with OEMs, the initiatives that we've had in safety and emerging markets, that we basically doubled our served markets from the mid-30s -- $30 billion, $35 billion, $38 billion to probably around $80 billion today. So we think that is what has been the real transformation of Rockwell Automation is that we now have tremendous growth opportunities because of that expansion. And we've done that through a combination of organic growth with some of the areas that you know very well, around the integrated architecture and intelligent motor control, but also with some acquisitions that have built up technology and domain expertise in areas that we didn't have before. So we think of it in a very simplistic way that we have doubled our served market and has enabled a runway for us to have above-market growth rates for an extended period of time.

Scott R. Davis - Barclays Capital, Research Division

Makes a lot of sense. Let's get the audience response system questions and get a sense of the profile of the audience. And if you're currently on this stock, yes; and you're overweight, yes; and you're equal weight, yes; and you're under weight or 4, is no. So I think you all know how to use the hand-held systems by now, so please let's start the voting.

[Voting]

Keith D. Nosbusch

Wow, lots of nos.

Scott R. Davis - Barclays Capital, Research Division

Wow, okay. That is -- that is very surprising. And actually in many ways, very encouraging when you think about it, right. Okay. So let's go to the next question. What is your general bias towards the stock right now, and this the stock, not the company which general -- and not these gentlemen and hopefully not me. That would be an interesting question, right? What is your general bias towards the stock? Positive, negative or neutral. Please vote.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

62% neutral. Interesting. And actually what's interesting is that there's lot of people who didn't vote, that actually don't have an opinion. Or they can't figure out the one, two and three. Wall Street's been downgrading talent for a while now. Just kidding. All right, next question. In your opinion, through-cycle EPS growth for Rockwell Automation will be above peers, in line with peers or below peers. At EPS growth through the cycle, please vote.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Wow, there's a lot of people who certainly don't have an opinion. A lot of people don't own the stock, who don't have an opinion, but they think the growth rate's above peers. So therefore, it must be a valuation question. So we've got to continue moving to get the answer to that. Let's go the next one, then. I wouldn't do this otherwise. In your opinion, what should Rockwell Automation do with excess cash? And we haven't talked about that yet today, but M&A as the first 2; bolt-on or larger; share repurchases, dividends; pay down debt; or internal? So, please vote.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Really spread out. That is amazing. There is no consensus view. When I tell you to buy back stock, you can just point to this and say...

Keith D. Nosbusch

Listen to the audience, listen to the audience.

Scott R. Davis - Barclays Capital, Research Division

Yes, you're not reflecting the true view of investors who have, obviously, very different views. Okay. So let's keep moving then. Let's get to the next one. I think this is going to help maybe answer the question. In your opinion, what multiple of 2013 earnings should Rockwell Automation trade, that's PE 2013? So please vote.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Okay. Very similar to what we're getting for all the other companies. Almost identical, and so therefore people must view your stock as maybe too expensive? Which I want to address that -- I want to address that in a second. But let's do the last question first. What do you see as the most significant investment issue for Rockwell Automation? Core growth, margin performance, capital deployment or execution strategy? Please vote.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Core growth. Okay. Well, you have high incremental margins so it makes a lot of sense. So I would generally agree with that.

Okay, great. All right. So let's talk about -- I mean, I happen to have a fairly binary view that as a stock, this is either going to working brilliantly or it's not. And it's not. The muddle-along scenario of we're going to be sitting here in 2 years and it's still an $80 stock is the lower odds. But we could be -- you have a global recovery and automation's picking up share of total capital spend, the cost of capital is low, as we all know, and we really have had -- I would strongly argue we've got underinvestment factories in the developed world for a very, very long time. So we're either going to be sitting here and the stock is going to just work brilliantly and we're going to be up, call it, $120 or $130 stock or it's not and we're going to be a $50 stock because we're going to find out this cycle doesn't have any teeth to it. So how do you guys think about that when you think about buying back your own stock? That -- the probabilities of we're in kind of an automation super cycle and you have a $9 earnings number out there -- I'm just making that up, but some big earnings numbers out there. Or we're kind of -- it's going to be -- we're peaking out here and we maybe have another year or 2 and then we're going to be sitting in a down cycle in 2015 and you have a chance to buy your stock at $50. How do you guys think about it because I personally think it's a very difficult answer.

Keith D. Nosbusch

Go ahead, Ted.

Theodore D. Crandall

So I would say the first thing is -- and I think you mentioned some of this earlier. We generate a lot of cash. We don't have much debt. In fact, we're about 0 net debt now. And we have a lot of cash in the balance sheet obviously. So basically, our approach around distribution of -- our cash deployment philosophy has been, every year deploy all of our free cash flow, first, to organic growth; second, to our acquisition strategy, and we'll probably talk about that a little later but we have not been spending a whole lot on acquisitions; and then beyond that, return, all excess free cash flow to shareholders either through dividends or share repurchase. And we've been pretty much executing that the last 3, 4 years. And the last 3 years, returned about $1.3 billion. About equally split, but a little bit heavier weighted toward dividend. So that's kind of -- that is what we have been doing with the cash and what we expect to continue doing with the cash.

Scott R. Davis - Barclays Capital, Research Division

Well, you're dodging the question. You didn't buy back a lot of stock in the last 2 quarters, right?

Theodore D. Crandall

Well, actually, if you looked at this year, based on our guidance roughly at the midpoint and based on an expectation of converting about 100% of net income to cash flow, we'd expect to have about 100 -- $750 million of free cash flow. Take about $100 million off of that for acquisition, what would be a reasonable expectation, about $260 million for dividend, that would leave about $400 million left for share repurchase. And basically, we did $88 million in the first quarter. So a little bit below the run rate, but not much below the run rate, right? I think when we look at what we're doing at any given period, right, there are probably 3 important things we look at. One is a longer-term projection of the company performance and on a discounted cash flow basis, do we think it's still makes sense to be buying back the stock at a particular price? And I would say that is a longer-term look. That's not a what if there's a recession next year, that kind of 5- to 10- year look. The second thing we look at is when we repurchasing, is it accretive? And obviously, at current interest rates, it's almost impossible for it not to be accretive, right? And then the third thing we look at is our relative PE against what we consider kind of a peer industrial set. And we typically have been trading in about a 1.0 to 1.2 range if you look back over the last 5, 6 years. And so when we get toward the high end of that range, we tend to pull back a little bit and when we're at the low end of that range, we tend to accelerate a little bit. Because we don't think we know what the price of stock-- the price of stock will be 3 months or 6 months out, we tend to be pretty constantly in the market around repurchases and staying roughly in that range that I talked about each quarter to get to kind of the full year target.

Scott R. Davis - Barclays Capital, Research Division

So I think you can make a pretty strong argument that you guys have taken a lot of cyclicality out of the company over time. In your product diversification, in your geographic diversification, you guys have made that point quite -- I think most investors would agree with that. So is there a thought at all that you could entertain a higher dividend payout ratio? And really, I think one of the things we've learned with industrial companies that even if earnings dropped tremendously, cash flow generally tends to stay more consistent at least than you have some inventory reduction and you cut CapEx and things like that. So there is more stability in cash flow than there is in the -- GAAP earnings can be a little bit deceiving. So have you thought in terms of one way to take volatility out of your stock is to have a higher dividend payout ratio because, then, when you do have the scenarios where the stock is really cratering, there is a buyer, there is a dividend buyer that's out there that you really can't fall below $50 a share in the next down cycle because the yield would just be too high?

Keith D. Nosbusch

Well, absolutely, that falls into the equation. If you look at the last 3 years, Ted talked about the amount that we've returned, but we've raised the dividend 62% -- over 60% in the last 3 years. And the one thing we have learned to your point, and you used the right word, we tend to have generally stable cash flow. So it's an area that we continue to review with the board on a quarterly basis. We certainly want to understand some of the -- at the end of this past year the tax implications of what was going to happen and I don't think that card is completely understood at this point in time. And investors, depending upon how that plays out, may value something differently, so we want to be careful there. But we do view the dividend as a way to encourage long-term ownership and to provide some type of balance when we go through, I'll call it, just a normal business cycle or the cyclicality of Rockwell as an industrial business. So I think, dividend is an important area for us to continue to pay attention to and to look at ways that we can create a sustainable yet appropriate dividend payout across the business cycles.

Theodore D. Crandall

I think a couple of other things. When we're out talking with investors, we ask -- often ask about preference around dividend versus share repurchases. And when we started doing that, my expectation was we were going to get a very strong preference around dividends, and that has turned out not to be the case. It's been pretty balanced, the response we've gotten from investors.

Scott R. Davis - Barclays Capital, Research Division

I think we saw that, yes, in the results. Investors don't always know what's good for them.

Theodore D. Crandall

Yes, the second thing is we've done some research around dividend yield against stock price volatility and what we've found is other than in some industries where you'd expect it to be the case, like utility and telecommunications, there doesn't seem to be a high correlation between higher yield and lower volatility. But I think, we think about this more in terms with a higher yield, would we have access to kind of a broader range of funds for investment where there are some yield targets that they -- or yield minimums that they set.

Scott R. Davis - Barclays Capital, Research Division

Wow, that historical data may not reflect that policy that we have now to....

Keith D. Nosbusch

That's possible, too.

Scott R. Davis - Barclays Capital, Research Division

Which could change. I want to open this up to the audience for one second, but I think it's important to ask about the yen and maybe what we're seeing out there in global currencies because when I first came into the automation space, I felt like we had an outsized amount of conversations about Yokogawa and OMRON and Mitsubishi and all of these guys. And then over the last 5 or 6 years, there was less and less, sequentially every year, less and less conversations about these folks. And although their products, I think, are more than suitable, the currency and the fact that their asset base was so heavy in Japan, they were less global than maybe some of the other guys out there, really became a big disadvantage for them. Has that changed -- I mean, do you see that as a threat at all that, particularly maybe with some of your business with the machine builders, that these guys can come back and be a little bit more aggressive?

Keith D. Nosbusch

We don't see the change in the yen as having a significant impact on the business. Most of the companies that you mentioned, and they are very good companies, they tend to have globalized their supply chain and a number of them have moved manufacturing to other geographies, particularly other Asian-based geographies, and so I think they have dampened some of the significant impact that the exchange rate has and that's the major reason we don't think it'll be meaningful at this point in time. I think the one area that there is, I think, a benefit for them is if the exporting OEMs in Japan are able to be stronger just like when the euro is weak, the exporting German OEMs are stronger. So I think they have a better foothold in the indigenous OEM market than a Rockwell would have even though our strength is with exporting OEMs because we have to -- they have to support the product globally, and we have a better support and service global footprint than any of the Japanese companies. So they have an inherent strength with indigenous OEMs and I think that would be the area that we would see some advantage, but that gets offset to some degree with our global support and service capability to be able to offset the pure yen appreciation.

Scott R. Davis - Barclays Capital, Research Division

That's great insight. So let's open it up to the audience, please. And if you have a question, just raise your hand. Go ahead, John.

Unknown Analyst

As you talk about the opportunities for brownfield projects in the U.S. on the process side, can you talk a little bit about, and I think it's something you talked about at Automation Fair and before, what the transition time is when you're replacing existing automation suppliers there? What's your downtime to transfer to PlantPAx and what kind of success are you having there?

Keith D. Nosbusch

Well, certainly in the U.S., in particular, there's a lot of, I'll just call it, legacy systems -- process systems, DCS systems, that are no longer supported by the original manufacturer. And some of that is simply because of age and some of it is because of the consolidation that occurred probably 20 -- 15 to 20 years ago and they no longer support all the platforms. So that creates a more level-playing field in brownfield situations whereas historically the automation system has a lot of stickiness and the incumbent has an advantage. But when they have to replace the system because it's either no longer supportable or it's no longer offered, we have an ability to help that customer migrate in a logical way where it's a evolutionary process to where they can sustain a lot of the field-based equipment and wiring and replace the processor, the HMI, the visualization, the network but yet sustain a lot of the expensive I/O wiring and devices themselves. And so that's really been a major part of our strategy as to how we're able to be relevant in both greenfield as -- which is mainly emerging markets, as well as brownfield where we're not the incumbent with that installed base.

Scott R. Davis - Barclays Capital, Research Division

Next question, please. Third row?

Unknown Analyst

What are the key attractions of many of your lines of business is the recurring after-market opportunity, which tends to have long runway. But the very thing that's attractive to you is attractive to your competition. And we've seen this happen in markets like the aerospace engine market or gas turbines or things, which are not your business, I understand, but there's a land grab that's underway because it's just very attractive to secure. Why do you feel that the economics of your process automation business, your discrete automation business, will remain robust in the face of the land grab that should be an objective for any and all of your competitors?

Keith D. Nosbusch

Well, certainly, the major reason we believe we're in a good position is because we believe that's our responsibility and our right to create the service opportunities on our equipment. And to protect that, we have created a number of service offerings that do that across, we would call it, life cycle management for the customer and it has broadened the services that we offer to make sure that we're providing cradle-to-grave, if you will, support of their automation investment across their entire life cycle, not just the life cycle of our equipment. The other thing that we've done is there's really no -- unlike the ones that you mentioned, engines or turbines or something like that, those are monolithic products. Our plant floor is not monolithic. And it's not just Rockwell Automation equipment. Even in our best customers, there will be a mixture for many valid reasons. And so, we also have to be able to support multiple products that, that customer may have and part of our offerings are to do their complete service and support capabilities independent of the hardware platforms that exist on that plant floor. So it's a little different environment than some of the more capital-intensive areas that you've talked about, which are unique and stand-alone entities upon their own. The plant floor is much more heterogeneous and we have set up programs that can help customers across a broader platform of products and provide the services needed to off-load all of that from their responsibilities. And it's -- and so therefore, we do not leave ourselves open for opportunities for others to provide those services on Rockwell Automation equipment. Or less of an incentive for others to do it, let me put it that way. There's always that potential, but we have identified ways of making sure that we protect and support our installed base as best as possible. And it's also done via the ongoing touch points that we have an our customers on an ongoing basis, many times with our channel partners. And it would be the distributors or system integrators who interact on a much more frequent -- on a daily basis with our customers unlike some of the equipment that you've talked about that does not have as much of that intimacy on a day-to-day basis where you're building those relationships and partnerships on an extended period of time. So multiple fronts that we've worked at to build that as a key critical part of our value proposition and recurring revenue stream for an extended period.

Scott R. Davis - Barclays Capital, Research Division

We'll take the next question right here.

Unknown Analyst

Does this mic work?

Scott R. Davis - Barclays Capital, Research Division

Yes, you just have to hold the end of the microphone.

Unknown Analyst

Okay. Could you just talk a little bit about what your competitive edge is compared to some of your competitors. And also if there's any difference in the customer-front position.

Keith D. Nosbusch

Start over. It wasn't ...

Unknown Analyst

I was intrigued a bit if you could talk about what you think your competitive edge is when compared to some of your competitors. You've got a very good products there, too. And in that regard, talk a little bit about what it is that influence -- what is it that makes that customers decide ultimately, who to choose? What are the key factors they look at?

Keith D. Nosbusch

Well, certainly from a competitive differentiation standpoint, we think our greatest differentiation is what we would talk about as the integrated architecture with multi-discipline control, the ability to do multiple control disciplines on the same hardware platform, which allows to offer plant-wide optimization for customers as opposed to having multiple controlled platforms for multiple vendors. They can achieve it all from Rockwell Automation. And that is unique, continues to be unique in the industry today and probably our greatest differentiator. If you look at the capabilities against a pure process company, our differentiators there would be in addition to the process capabilities that we have, the ability to also focus on intelligent motor control and the safety aspects of process is a differentiator and the opportunity to work with OEMs, in particular in process industries, they're called skid OEMs, and they're the ones that equipment comes into the plant that is not part of the original process lines or the DCS system and it has to be integrated to the control system because we have a very strong OEM organization and capability that differentiates us from the pure DCS companies. And I think those are the 2 greatest ones. And so if you take those differentiators, the competitors that we compete with is a much smaller number than the broader set that you would attach to either the discrete area or the process areas from an automation standpoint. And then I think, the other dimension that we believe that offers differentiation is our partnering strategy, both with complementary product providers, but also the partners that enable the market access model whether it be our limited distribution model or the partnering with system integrators. I think that also is a big differentiator. And it goes back to the earlier question about how do we support customers on an ongoing basis. We really have that support mechanism that is involved with the customer in broader way -- in a broader way than just the automation investment, so we're able to build a relationship. And ultimately, the competitive differentiation that we focus on is about quantified business value for our customers, and how we deliver that is either through helping them with faster time to market, lower total cost of ownership, improved asset utilization or reducing their enterprise business risk. And that's the value proposition that we're able to offer our customers and deliver that either through the products or the solutions and services that we're able to provide them.

Scott R. Davis - Barclays Capital, Research Division

I think that's a great way to stop. So let's segue into lunch. Thank you all for your interest, and thank you, Ted and Keith, for being here.

Theodore D. Crandall

Thank you.

Keith D. Nosbusch

Thanks a lot, Scott.

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Source: Rockwell Automation Inc. Presents at Barclays Industrial Select Conference, Feb-21-2013 10:35 AM
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