Blake Moret
Chairman & Chief Executive Office at Rockwell Automation
Thanks, Aijana, and good morning, everyone. Thank you for joining us today. Before we turn to our second quarter results on Slide 3, I'll make some initial comments. At a high level, our performance in Q2 was good, but I am not happy with the reduced guidance for the full year. The impact of high inventory levels at machine builders is larger than we expected. Orders are still expected to return to year-over-year growth in Q3 and continued to increase during the year, but the slower ramp is impacting shipments for the second half. Consequently, here's what we are doing. We are accelerating actions to bring costs in line with the revised outlook on current year orders, aligned with the more comprehensive program to expand margins introduced during our Investor Day in November.
We will save $100 million in the second half of this year from accelerated actions being taken now, creating a beneficial starting point for fiscal year '25. We will see incremental savings of $120 million next year from these actions alone plus a larger amount of additional savings from the more comprehensive program targeting sourcing, manufacturing and SG&A and we will provide a more detailed view of this program on our next earnings call. We are improving our forecasting with new perspectives on the team processes that include a deeper analysis of channel information and better decision support technology.
I'm optimistic about our position when we exit fiscal year '24 and regardless of next year's growth for several reasons. Rockwell has built an unmatched portfolio to meet the world's growing need for smart manufacturing. Our home market, North America is expected to grow faster than the worldwide PAM. We are winning major new business today with both our traditional offerings and new sources of value across discrete, hybrid and process industries. As we couple this with our focus on margin expansion through cost discipline, operational excellence and organic growth we will achieve the longer-range targets introduced in November and create significant shareowner value.
Turning to the quarter. As we indicate on Slide 3, we returned to good operational performance in the second quarter with both organic sales and adjusted EPS above our expectations. Sales of product configured to order offerings, software and life cycle services were all at or above our forecast. In products, we converted incoming orders at a much higher level than in Q1, and we now have sufficient mix of safety stock in place to convert orders at the current level or higher through the balance of the fiscal year.
We are essentially back to booking and billing product orders in the quarter they are received at pre-pandemic conversion rates. Our orders were up low double digits sequentially and with continued recovery across all business segments and regions, North America had the highest sequential increase in the quarter. Year-over-year, total sales were down 6.5% in the quarter based on an organic sales decline of 8% and 1.5 [Phonetic] points of acquisition growth. In our Intelligent Devices segment, organic sales declined about 7.5% year-over-year. I'm pleased with our execution to meet our shipping commitments and build safety stock in the quarter for these products. We also continue to see strong performance from our recent ClearPath acquisition, with sales of autonomous mobile robots contributing almost 2.5 points to ITD growth in the quarter. One notable ClearPath win this quarter was with the Hershey Company.
The Hershey Company continues to advance digital capabilities to enhance agility and efficiency across its operations, including supply chain and manufacturing processes. As part of their efforts, Hershey has selected Auto Motors technology to improve productivity in both fulfillment and manufacturing operations. Q2 margin performance for ClearPath was also better than expected. Software and control organic sales were down 23% versus prior year, largely as we expected. As you know, this segment is significantly impacted by difficult year-over-year comparables in our Logix business.
In Q2 of last year, we had 42% growth in software and control. There are particularly high levels of these products in inventory at our machine builders. Despite this temporary correction, we are gaining Logix share and winning new business across our software and hardware offerings. I'm proud of the vitality of our product development here, demonstrated by recent organic product launches and partnerships with Microsoft and NVIDIA that are focused on specific customer use cases especially those that will benefit from simulation and simplification using artificial intelligence. These partners recognize that machines and manufacturing processes represented an enormous largely untapped source of data and petabytes of this data flow through our controllers. They also know we have the manufacturing domain expertise to select the best use cases for their technology. Lifecycle Services organic sales grew over 12% year-over-year and continue to outperform our expectations driven by strong process end markets. Book-to-bill in this segment was 1.07, led by good order growth in our solutions and Sensia businesses.
Our Sensia JV saw another quarter of over 25% year-over-year sales growth in Q2. The Lifecycle Services segment also continues to contribute strong growth from our high-value services, including cybersecurity, which saw orders growth of almost 50% in the quarter. We are making substantial progress to expand life cycle services margin. We saw 16% margin in this quarter, and we're not done working on the performance of this business segment. Total ARR was up 20% again this quarter. We continue to see strong profitable recurring growth from both high-value services and software. Rockwell segment margin was 19%. This would have been about 17% without the reversal of the bonus accrual we recorded in the quarter.
Adjusted EPS of $2.50 was above our expectations even after adjusting for the reversal of the bonus accrual. Nick will cover this in more detail later on the call. Let's now turn to Slide 4 to review key highlights of our Q2 industry segment performance. Sales in our discrete industries were down high teens versus prior year. The impact of high product inventory levels in the channel are most pronounced in our discrete and hybrid industry segments. Automotive, e-commerce and other warehouse automation sales were all impacted. Within discrete, automotive sales were down 20%. Much of this year-over-year weakness is driven by excess product inventory in our channel. However, we're also starting to see some impact on our fiscal '24 sales as customers take time to reevaluate the timing of their EV investments. While we are not seeing any EV or battery project cancellations, we are seeing pushouts of certain production start dates.
As we've mentioned, given our strong installed base and expanded portfolio, Rockwell is well positioned with automotive customers, whether they are investing in electric vehicles or adding more hybrid options in the near term. They are all interested in increasing efficiency. In addition to our traditional sources of value, ClearPath autonomous mobile robots helped us secure over half a dozen wins with major brand owners and Tier 1 suppliers this quarter. Semiconductor sales declined 25% year-over-year with continued geopolitical pressures and a temporary oversupply of legacy chips weighing on semi customers' Capex investments. Our sales in e-commerce and warehouse automation were down high teens this quarter. We did see an improvement in sequential growth and increased our full year sales outlook. We're rebuilding a strong warehouse pipeline with traditional retailers and global shipping and logistics customers.
Turning to our hybrid sales. This industry segment was down mid-teens year-over-year. The weakness in this industry segment was led by food and beverage and home and personal care. Food and beverage sales declined 20% in the quarter, driven by slower activity at our packaging OEMs and who are still working through their excess inventory. There are also some signs of slower end user Capex spend. Food and beverage end users are continuing to fund capacity expansion in emerging markets like India and Southeast Asia and modernization and resilience projects across their existing facilities.
We had wins in the quarter, including the AMR project I mentioned earlier and cybersecurity projects at new customers. Life Sciences sales were down high single digits. Results in the quarter were mainly driven by project delays, especially in China. Outside of that region, we continue to expand our installed base with newer software and hardware offerings. One example of new value in this vertical was an important Q2 order with an innovative contract manufacturer, national resilience, who selected ClearPath to provide a comprehensive AMR solution as they bring cell and gene therapies to market.
Moving to process. Our sales here grew high single digits year-over-year, supported by continued strength in oil and gas and mining. Oil and gas sales were up over 20% this quarter with continued momentum in energy transition projects. In Q2, we secured multiple decarbonization projects, including applications for carbon capture, storage and hydrogen. Let's turn to Slide 5 and our Q2 organic regional sales. The Americas continued to be our strongest region this year with Latin America growing 8% versus prior year, and North America organic sales down about 4% in the quarter. EMEA sales decreased 19% due to high machine builder inventory in Germany and Italy, particularly in consumer-packaged goods. Asia Pacific sales declined 17% in the quarter, with sales in China down almost 30% versus prior year. We expect a combination of weaker market conditions and slower distributor destocking to continue to impact our China performance through the balance of this fiscal year.
Moving to Slide 6 for our fiscal 2024 outlook. As I mentioned at an investor conference in March, while orders continue to increase sequentially from the trough, we have not yet seen the acceleration we expect once distributors and machine builders work through their excess inventory. The result is that some of the demand they are seeing does not translate to an equal amount, of orders placed on Rockwell. I also said that if the pace of orders continued on its current trajectory, we would expect our full year 2024 financial results to track closer to the low end of both our organic growth and EPS range. Since then, we've seen lower-than-expected order activity. While distributors and machine builders are continuing to work through their excess inventory, we have underestimated the amount of overstock at our machine builders. Based on information received directly from our largest machine builders, our downward revision is based largely on the size of their inventory and the expected pace of the reduction resulting in a slower ramp of orders in the fiscal year. Again, we do expect to return to year-over-year growth in orders for the third quarter and our updated forecast still implies sequential order growth in Q3 and Q4.
We believe we are taking share in our major product lines globally and in the U.S., North America is our strongest market, and we are starting to see an increased order impact from customer mega projects as the year progresses. We now expect our full year orders to be down low single digits versus prior year. Based on our performance to date and the lower-than-expected order ramp we are revising our fiscal '24 sales guidance range with organic sales projected to decline 7% at the midpoint, and we continue to expect acquisitions to contribute 1.5 points of growth. ARR is still expected to grow about 15%. Segment margin of 20% is now expected to decline versus prior year, which still implies an increase in the second half and specifically in fiscal Q4, driven by higher volume and the accelerated cost down actions I mentioned earlier.
Nick will share additional detail in his section. Adjusted EPS is slated to decrease 13% year-over-year at the midpoint. We are increasing planned share repurchases to roughly double our original plan for the year. And we expect free cash flow conversion of 80%. This is a reduction from our prior guide, and Nick will cover this in more detail later. The reduced guide for the fiscal year only strengthens our commitment to building a strong foundation for future growth and profitability. The company-wide program to comprehensively take cost out of our products and operations will positively impact our results next year. Savings will be used to expand margins and reinvest to drive future growth.
We will provide additional detail no later than the Q3 earnings call. Our intention is to manage our business segments for consistent forecastable performance. You've also seen the announcement of Nick's upcoming retirement. A search has been underway and we expect to announce a new CFO in the coming months. Nick will be fully engaged in the transition to his successor and he will now provide more detail on our Q2 performance and financial outlook for fiscal '24. Nick?
