Rockwell Automation Pricing Spineometer: 3 of 5 Vertebrae
Rockwell Automation, an industrial automation and information company, had a positive FY 2023. Revenue rose 17% to $9.0 billion and earnings before interest and taxes rose 28% to $1.7 billion over the same period last year.
A review of Rockwell Automation’s 2 November earnings call and financial report provided insight regarding the importance of pricing on performance.
LEARNINGS FROM REPORT
Blake Moret, CEO of Rockwell Automation, described Rockwell Automation as a highly complex and dynamic business.
- Rockwell Automation serves customers globally with significant operations across North America, Europe Middle East and Africa, Asia-Pacific, and Latin America.
- Their customers operate in multiple industries including electric vehicles, semiconductor wafer fabricators, tire manufacturing, power distribution, warehouse and logistics, food and beverage, life sciences, and oil and gas exploration and production.
- Rockwell Automation offers these customers a mix of robotics, software, data, intelligent devices, cybersecurity, generative AI, and more.
- And, Rockwell Automation actively engages in mergers and acquisitions which requires good estimates of the pricing potential of newly acquired offerings.
Nick Gangestad, CFO of Rockwell Automation, contributed some of the recent performance to pricing actions but indicated few further pricing actions are anticipated for 2024.
- Concerning 2023 performance, he stated, “Q4 organic sales were up 17.7% … About 6 points of our organic growth came from price.”
- As for 2024 expectations, he stated, “We are assuming that price growth will be slightly over 1% year-over-year. And in terms of input costs, we’re expecting that to be very neutral year-over-year, causing the net price cost to be a little over 100 basis points accreted to margin.”
To meet the pricing decision-making needs of this business as described, we would expect the following.
- 20 to 90 professionals dedicated to pricing according to industry benchmarks, but towards the upper end of this range given the dynamic, global, and customer complexity.
- A portion of this team would be dedicated to pricing new offerings given the number of new offerings and the dynamic nature of the sector in which they compete.
- Another portion of this team globally distributed and focused on transactional price management to ensure proper price capture throughout the customer negotiation process.
- A few members of the team would focus on examining the macroeconomic changes and opportunities created via governmental policy initiatives.
- Other pricing team members should be focused on the changing business models given the dynamics of the industries in which they compete.
Research into the investment by Rockwell Automation in pricing yielded somewhat encouraging results. The pricing team size appeared to be within but at the lower end of the industry benchmark expectations. The pricing team responsibilities were largely aligned with industry expectations working on price setting and deal management with one person specifically identifying competitive intelligence as a focus. Team roles varied between analyst and manager, many of which had “global” responsibilities, yet some were clearly in the field.
It is a shame directors and vice presidents of pricing could not be identified. This implies that pricing is not a career track or a recognized area requiring subject matter expertise itself at Rockwell Automation, but rather an assignment within a different career path in the organization that can be performed by a generalist. If so, Rockwell Automation is missing opportunities. Pricing has been shown at many companies to be a fulfilling career requiring specialized knowledge and benefiting the organization as a peer rather than an administrator. It is probable that opportunities are untapped and knowledge gaps exist that hamper their strategic competitive stance in some of the faster-moving (cybersecurity, generative AI, and robotics ) offering portfolios.
Given the importance and capability of pricing at Rockwell Automation as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of December 2023.
Rockwell Automation Pricing Spineometer: 3 out of 5 Vertebrae. The core exists but there is much opportunity for improvement.
ROK (Rockwell Automation Inc.) fell slightly from 265 the day prior to their earnings call to 258 one week later. FY 2023 revenue of $9.0 billion with a 19% operating margin and P/E ratio near 23.
For FY 2023, a 1% improvement in price would yield 5.4 % improvement in operating profits holding all else constant at Rockwell Automation.
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