Blake Moret
Chairman and Chief Executive Officer at Rockwell Automation
Thanks, Aijana, and good morning, everyone. Thank you for joining us today. Before we turn to our third quarter results, I'll make some initial comments. As we saw in Q2, operational performance continued to be strong in our third quarter, but order growth continued to ramp at a slower than expected pace. Our accelerated actions to bring costs in line with the lower outlook on current year orders contributed to the strong margin performance in the quarter, and we are well into the more comprehensive program to expand margins introduced during our Investor Day last November. We continue to expect savings of $100 million in the second half of this year from accelerated actions taken this fiscal year, which will create a good starting point for fiscal year '25.
Based on actions taken in the last 12 months, our worldwide headcount is down 6% since Q2, and most others who will be affected have been notified. 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, as I'll discuss in a few minutes. We've announced our new CFO, Christian Roth, who starts in two weeks and is excited to begin.
Christian brings a successful track record and will work with me and the rest of the team to combine market-beating growth and financial performance in a consistent, longer-term model based on the targets introduced last November to create significant shareholder value.
Turning to specific results in the quarter, Q3 orders were up low single digits both year over year and sequentially, with growth across all regions. However, while our distributors and machine builders are making progress on working down their excess inventory, their orders to us came in lower than expected in the quarter due to weaker end-user demand.
As a result, we are projecting a more gradual sequential order growth in Q4 and into fiscal year '25 than we had previously expected. We had another quarter of strong execution with sales, margins, and EPS all exceeding our expectations. Total and organic sales were down 8.4% versus prior year. Organic sales came in better than we expected, with strong backlog execution in our longer cycle businesses, including lifecycle services and the configure-to-order products in intelligent devices. Organic sales in our intelligent devices segment were down by about a point versus prior year. We continue to see a solid pipeline of projects across all product lines, including good opportunities involving Clearpath's auto, mobile robots, and CUBIC data center solutions. In software and control, organic sales declined over 31% year over year compared to 24% growth in Q3 of last year. Sales in this segment were still better than expected, driven by better logics recovery as machine builders reduced their inventory. We also saw good growth in our software business, including both on-prem and cloud-native offerings.
For example, in the quarter, we had over 150 new logos for our recently launched FactoryTalk Optix portfolio. This reinforces the importance of continued investment in innovation and new product introduction as we continue to redeploy and prioritize our spend towards areas of highest growth and strategic importance. We've talked a lot about cost savings during this challenging year, but we're taking great care to preserve the investments that will enable us to continue to grow share.
Lifecycle services had another strong quarter, with organic sales up over 11% year over year, driven by continued relative strength in process end markets and strong execution of our project backlog. Book-to-bill in this segment was 1.0. We did see some additional project delays, especially affecting our solutions orders. Some manufacturing customers are taking a pause in making large-capacity investments as they deal with slower consumer demand, high interest rates, and policy uncertainty around tax tariffs and stimulus incentives.
Even so, our customers are still investing in their operational resilience, reflected by continued double-digit sales growth of our recurring managed services. Total ARR for the company was up a strong 17% this quarter. Segment margin of 20.8% and adjusted EPS of $2.71 were well above our expectations. We're making good progress on driving productivity across the enterprise, and we are seeing the benefits of these actions with over $40 million of savings in Q3 alone.
Turning to Slide 4 to review key highlights of our Q3 industry segment performance. Last quarter, we talked about some project delays and end-user capex slowdown in parts of our business, namely automotive and food and beverage.
We saw project delays across a broader group of industries this quarter, which will impact our end-market performance through the end of the fiscal year. Sales in our discrete industries were down high single digits versus prior year, with declines in auto and semi being partially offset by year-over-year growth and warehouse automation. Within discrete, automotive sales declined high teens versus prior year.
Brand owners are delaying more EV programs as they continue to reassess their product strategy in light of slower consumer adoption and policy uncertainty in the U.S. Semiconductor sales were down high teens. We continue to see delays in new capacity builds and the associated tooling due in part to questions about the timing and certainty of chips funding disbursements. E-commerce and warehouse automation sales grew high teens versus prior year, led by strong double-digit growth in North America.
We continue to see a broad-based recovery at our end-user and machine builder customer segments. Moving to hybrid, sales in this industry segment were down mid-teens, driven by year over year declines in food and beverage and life sciences. Food and beverage sales decreased mid-teens in the quarter. Producers in certain segments of the food and beverage market, like baking and snacks, are seeing inflationary headwinds as consumers shift from high-end brands to more affordable labels. We're seeing less greenfield activity, but we do continue to see high demand for software and services that optimize processes to increase efficiency. Life sciences sales were down high teens. Similar to food and beverage, customers in life sciences are prioritizing investments in their operational resilience and infrastructure.
In the quarter, we had important wins with two leading pharmaceutical companies. The life science business of Merck in Darmstadt, Germany, which operates in the U.S. and Canada as Millipore Sigma, selected Rockwell to assess the company's current plant infrastructure and help enhance the digital connectivity and cybersecurity resilience of operational assets. Another important Q3 win in life sciences was with AstraZeneca. Together with our partner, Claroty, we're helping the customer identify and monitor plant assets, detect threats, and integrate internal services and systems to provide a comprehensive global cyber platform for all of their OT environments. Process sales were mixed across the individual vertical markets.
Overall, sales were about flat year over year with growth in oil and gas and mining offset by declines in chemicals and metals. Oil and gas sales grew low single digits this quarter. Within this segment, our Sensia JV sales grew double digits versus prior year with good growth in process automation and digital solutions offerings.
And while we continue to win business in the energy transition space, we did see some North America project pushouts tied to customers wanting to understand potential policy changes that may occur after the U.S. elections in November. In mining, our sales increased high single digits versus prior year. Our growth in the quarter was driven by continued double digit growth in Latin America.
Here, Rockwell was chosen to integrate an end-to-end solution for Rockwell's new processing plant as this customer looks to increase production capacity, reduce water consumption, and enhance cyber security infrastructure. This is a great example of how Rockwell brings our hardware, software, and services together to deliver differentiated value for our end users.
Let's turn to Slide 5 and our Q3 organic regional sales. The Americas continue to outperform the rest of the world with North America sales flat year over year in the quarter and Latin America sales up almost 19%. EMEA sales were down 28% with continued macroeconomic challenges across Germany, Italy, and France impacting end-user demand. Despite these headwinds, we continue to make progress with our European machine builders to gain share in the end-user market.
In the quarter, EMEA Group, an Italian-based leader in designing and developing packaging machines, has sold over a dozen machines equipped with our Rockwell platform by recognizing the technical advantage of our motion control capabilities coupled with the time-to-market provided by our integrated architecture solution. Their end-user, who is based in Germany, is now looking to adopt Rockwell as its preferred choice in all future commissions. Asia-Pacific sales declined 22%. In addition to continued inventory destocking and economic challenges in China, we saw incremental headwinds from EV battery project delays in Korea this quarter.
Moving to Slide 6 for our fiscal 2024 outlook. While our orders are improving sequentially, they're progressing at a more gradual pace than we anticipated. We believe this is largely tied to a pause in new capacity investments as manufacturers focus on cost control and operational efficiency, waiting for a potential reduction in interest rates and broader U.S. policy changes. Therefore, we're reducing our fiscal year 2024 guidance to reflect this gradual pace of orders growth. Taking into account our order progression through early August, we now expect Q4 orders to be up low single digits sequentially.
With that, we expect our organic sales to decline 10% for the year. We continue to expect acquisitions to contribute about a point and a half of growth, and we expect currency to be about neutral for the year. Total ARR is expected to grow about 15% and will exceed 10% of total Rockwell sales this year. We now expect our segment margin to be slightly over 19% for the year. While this represents about a 200 basis point decrease versus last year, it also shows the improving resilience of our business model. Adjusted EPS is slated to decline 21% versus prior year.
We expect free cash flow conversion of 60%. Nick will cover this in more detail in his section. Before I turn the call over to Nick, I'd like to spend a few moments on Slide 7 to discuss the progress we're making in setting the foundation for long-term productivity and margin expansion.
We already talked about the accelerated actions we're taking in the second half of this fiscal year to drive efficiency and scale across our entire company, and we remain committed to delivering $100 million of savings this year and $120 million of incremental savings in fiscal year '25, mainly targeted at reducing our SG&A spend. We will continue to optimize our general and administrative spend through a targeted approach, although the majority of additional productivity and margin expansion will be realized as a result of reductions in our cost of sales. As you can see from this chart, we expect to save another $130 million in fiscal year '25 through additional margin expansion and productivity projects, bringing our total fiscal year '25 year over year savings to roughly $250 million. You can see the broad list of actions and programs that are underway to realize these targets. These productivity projects include savings in the areas of product cost, indirect material, purchase services, logistics, manufacturing workflow, maker-buy decisions, portfolio optimization through SKU reduction, and price. We look forward to our new CFO, Christian Ross' additional perspective as we maximize the effectiveness of this program in fiscal year '25 and preserve it as a foundational part of our operating model going forward, regardless of the top-line growth in any particular year.
Let me now turn it over to Nick to provide more detail on our Q3 performance and financial outlook for fiscal '24. Nick?
