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Rockwell Automation, inc (ROK) Q4 2021 Earnings Call Transcript

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ROK earnings call for the period ending June 30, 2021.

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Rockwell Automation, inc (ROK 0.58%)
Q4 2021 Earnings Call
Nov 2, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for holding and welcome to Rockwell Automation's Quarterly Conference Call.

[Operator Instructions]

At this time, I'd like to turn the call over to Jessica Kourakos, Head of Investor Relations. Miss Kourakos, please go ahead.

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Jessica Kourakos -- Head of Investor Relations

Thanks, Chris. Good morning and thank you for joining us for Rockwell Automation's Fourth Quarter Fiscal 2021 Earnings Release Conference Call. With me today is Blake Moret, our Chairman and CEO and Nick Gangestad, 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 and our call today will reference non-GAAP measures. Both the press release and charts include reconciliations of these non-GAAP measures. A webcast of this call will be available at that 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. Additional information and news about our company can also be found on Rockwell's Investor Relations Twitter feed using the handle @investorsrok that's at Investors ROK.

Before we get started, I need to remind you that our comments will include statements following 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 our SEC filings. So with that, I'll hand the call over to Blake.

Blake Moret -- Chairman & CEO

Thanks, Jessica and good morning everyone. Thank you for joining us today. Let's turn to our quarterly results on Slide 3. We saw another quarter of exceptional demand across all three business segments. Total order surpassed $2.2 billion and grew 40% over the prior year, reflecting a very strong demand pipeline across our portfolio of core automation and digital transformation solutions. Total revenue of over $1.8 billion grew 15% with additional sales that shifted in the fiscal '22 due to supply chain headwinds. Organic sales grew 13% versus prior year. We had very strong growth in core automation and the Information Solutions, and Connected Services grew double digits in both orders and revenue. This performance was led by strong demand for software and cyber security services. Turning to ARR, we continue to make significant progress to drive recurring revenue. Our ARR grew organically by over 18% and including our recent acquisition of Plex now accounts for over 8% of total sales. Segment margin of 18% came in line with our expectations with the execution of planned investments in Q4.

I'll now comment on our topline performance by business segment. Intelligent devices organic sales increased 15% versus prior year, even with significant headwinds from supply chain. From an orders perspective, this is the fourth consecutive quarter of record order intake in this segment with orders 30% above fiscal 2019 levels. We continue to see significant strength across the automation portfolio and share gains particularly evident in motion led by our Independent Cart Technology. Software and control organic sales grew 14% led by strong demand across the segment including double-digit growth in Logix. Orders grew approximately 50% year-over-year, once again showing great momentum across the software, control, visualization and network portfolios. In Lifecycle Services, organic sales increased 7% versus the prior year and increased 2% sequentially even with some projects delayed as a result of component availability. Lifecycle Services book to bill of $1.09 was well above seasonal Q4 levels. Total company backlog of $2.9 billion grew by over 80% year-over-year. Over 40% of backlog is related to our Lifecycle Services business.

Turning to Information Solutions and Connected Services, which represent many of Rockwell's numerous digital revenue streams. We had another great quarter. Recent orders included a number of meaningful software and infrastructure as a service wins. One of the more notable wins in the quarter which Ardagh Group, one of the world's largest sustainable packaging companies. The company had placed million dollar order for fixed software in Q3 to reduce unplanned downtime. Ardagh like a lot of manufacturers is trying to respond to a sharp increase in demand. By Q4 as a relationship develop we pulled through an additional $4 million purchase of core automation products showcasing the tremendous synergy resulting from our new software capabilities and intelligent devices. With their ARR going 45% and over 470 new fixed customers added in just the last nine months. I'm very happy with the contributions Fiix has been able to make to our overall business.

We also had a great win with one of the world's largest Food and Beverage companies in two key application areas. The first one is in the area of predictive analytics. Where are our Kalypso digital consulting business will combine our FactoryTalk innovation suite with our automation technology to provide real time monitoring and analytics for their manufacturing environment. The second application is in the area of sustainability for our software and automation technology will be used to help monitor water, air, gas, electricity and steam usage to develop real time KPIs that further reduce their carbon footprint and drive quantifiable production outcomes.

Kalypso continues to play a very important role within Rockwell and spearheading some of the most exciting digital transformation projects in all of manufacturing. Our customers are recognizing Rockwell's expanding capabilities to converge IT and OT and be a strong partner throughout the digital transformation journey. In fact, we now yesterday that we are adding to Kalypso's capabilities with our acquisition of Avata which will strengthen and expand our supply chain solutions domain expertise. This expertise, combined with our operations management software and that of our partners drives great outcomes for our customers. We are very excited to be expanding our presence in the connected supply chain, since it is such a critical high growth area.

We also accelerated our FactoryTalk SaaS offering with the acquisition of Plex in September. The integration is going well and we look forward to showcasing the entire FactoryTalk software offering including Plex at our upcoming Investor Day on November, 10th in Houston. We hope to see you there. I'd also like to highlight the increasing traction we're seeing with our PTC partnership. Our sales force seeing the number and size of engagement is growing. The capabilities and versatility of the combined solution is a great way to win with both existing customers and new ones all over the world. Not only the wins we saw this quarter we're in diverse industries around the world. We're happy with this partnership, I think it's a great part of our software portfolio.

Let's now turn to Slide 4, where I'll provide a few highlights of our Q4 end market performance. We had great performance in our discrete industry segment with roughly 15% sales growth. Within this industry segment, automotive sales grew about 15% led by an increase in EV capital project activity including a strategic win at Magna. One of the top Tier 1 auto manufacturers delivering EV content for GM and forward. Semiconductor was strong from 20% off of a very good quarter last year. E-commerce performance was also exceptional the sales growing approximately 30% versus a strong prior-year.

Turning now to our hybrid industry segment, the verticals in this segment also had a terrific quarter. Food and beverage grew about 15% led by strong greenfield and brownfield project opportunities in North America and EMEA, as well as strong double-digit OEM demand. Life Sciences grew over 15% in Q4 and remains one of our top growth verticals. We see continued growth in the overall Life Sciences market and evidence that we are taking market share. Once again, our fastest growing vertical in the hybrid segment was Tire, which is up about 35% in the quarter. Process markets grew over 10% with strong sequential and year-over-year growth in oil and gas, especially in our Sensia JV. In summary, we are clearly seeing very strong growth across discrete and hybrid segments as well as improving oil and gas trends.

Turning now to Slide 5 in our Q4 organic regional sales performance. North America organic sales grew by 16% versus the prior year with strong double-digit growth across all three industry segments. EMEA sales increased 7% driven by strength in Food and Beverage, Tire and Metals. Sales in the Asia Pacific region grew 12% with broad-based growth led by EV, semiconductor, and mining. In China, we saw double-digit growth driven by strength in mining, Life Sciences, Tire and the EV.

Let's now turn to Slide 6 to review highlights of fiscal '21. Record orders of $8.2 billion in 26%. Reported sales grew 11% even with supply chain constraints. Organic sales grew almost 7%. ICS revenue exceeded $500 million at year-end and grew double-digits organically. Adjusted EPS grew 20% and we once again generated significant cash flow due to our very profitable financial framework, strong focus on productivity and financial discipline.

At the same time, we made significant investments in our future to accelerate profitable growth. That included organic investments as well as inorganic investments. In fiscal '21, we accelerated funding of software development projects and deployed approximately $2.5 billion toward inorganic investments. At the same time we returned $800 million back to share owners in the form of dividends and buybacks.

Turning to Slide 7. You can see how these investments in our strong order momentum in backlog are helping to accelerate our top line performance heading into fiscal '22. Our new fiscal '22 outlook expects total reported sales growth of 17.5% including 15.5% organic growth versus the prior year. These projections take into account our latest view of supply chain constraints. We have the people, supplier commitments and plant capacity to support this growth, but we will know now need to continue to manage new challenges as they emerge in this highly dynamic environment. We expect global-digit growth in both core automation as well as information solutions, and connected services. Acquisitions are expected to contribute two points of profitable growth. We are increasing our margin expectations to 21.5% at 150 basis points over the prior year. Our new Adjusted EPS target of $10.80 at the midpoint of the range represents about 15% growth compared to the prior year.

I should add that we expect another year of double-digit annual recurring revenue growth, including our recent Plex acquisition which adds approximately $170 million to our ARR totals in fiscal '22. A more detailed view into our outlook by end market is found on Slide 8. I won't go into the details on this slide. But as you can see, we continue to expect broad based organic sales growth in fiscal '22. With that, let me now turn it over to Nick who will elaborate on our fiscal '21 results and financial outlook for fiscal '22. Nick.

Nick Gangestad -- CFO

Thank you, Blake, and good morning everyone. I'll start on Slide 9, Fourth Quarter Key Financial Information. Fourth quarter reported sales were up 15% over last year. Q4, organic sales were up 12.6% and acquisitions contributed one point to total growth. Currency translation increased sales by 1.5% points. Segment operating margin was 17.9% in line with our expectations. The 230 basis point decline was primarily related to higher planned investment spend, the reversal of temporary pay actions and the restoration of incentive compensation, partially offset by the impact of higher sales. Corporate and other expense was $33 million. The year-over-year increase was from deal costs associated with Plex acquisition. Adjusted EPS of $2.33 was better than expected and grew 21% versus the prior year. I'll cover a year-over-year adjusted EPS bridge on a later slide.

The adjusted effective tax rate for the fourth quarter was negative 3%, much lower than expected, compared to 15% in the prior year. The lower than expected rate was related to the cumulative impact of several one-time discrete items recognized in the current quarter. Free Cash Flow performance was in line with our expectations. We generated $160 million of Free Cash Flow in the quarter. The Free Cash Flow generation includes higher levels of working capital in the current year to support our increasing revenue and build inventory in anticipation of the accelerated revenue levels in fiscal year '22. One additional item not shown on the slide, we repurchased 200,000 shares in the quarter at a cost of $61 million. For the full year, our share repurchases totaled $301 million in line with our July guidance. On September 30th, $152 million remained available under our repurchase authorization.

Slide 10 provides the sales and margin performance of our three operating segments. Organic sales of both Intelligent Devices and Software & Control were up double digits. Lifecycle Services' organic sales were up sequentially and up 7% year-over-year, led by oil and gas, Life Sciences including beverage. All segments saw strong double-digit growth in orders. Compared to last year, Intelligent Devices margins were up 100 basis points on higher sales. This segment did see higher input costs both year-over-year and sequentially, however these costs were largely offset by price. Segment margins for the Software & Control segment declined 330 basis points compared to last year. With higher planned investment spend, partially offset by higher organic sales this segment benefited from positive price cost in the quarter. Lifecycle Services segment margin was 8.1% and declined 820 basis points driven by the reversal of temporary pay actions, the reinstatement of incentive compensation, as well as unfavorable mix partially offset by higher sales.

The next Slide 11 provides the adjusted EPS walk from Q4 fiscal '20 to Q4 fiscal '21. As you can see core performance was up about $0.70 on a 12.6% organic sales increase. Approximately $0.10 was related to non-recurring accelerated investments that we announced earlier this year. These investments are mostly in our Software & Control segment. The reversal of temporary pay actions and restoration of incentive compensation contributed negative $0.45. Acquisitions were a $0.15 headwind due to the deal costs associated with the acquisition. As previously noted, our lower adjusted effective tax rate contributed $0.40.

Slide 12 provides a walk from our Q4 midpoint in our July guidance to our actual Q4 adjusted EPS results. We usually don't provide this information, but I wanted to show how the quarter played out relative to the midpoint of what we had guided back in July. The unforeseen impacts of the Delta variant in Southeast Asia added incremental pressure to the supply chain. But the impact of the volume mix of $0.40 was mitigated to lower incentive compensation, further productivity and a favorable mix, all of which contributed $0.35. As previously noted, a more favorable tax rate benefited our EPS versus guidance by $0.25.

Moving to Slide 13, product order trends. This slide shows our average daily order trends for our products, which includes our software portfolio. As a reminder, the trends shown here account for about two-third of our overall sales. Order intake was broad based and improved sequentially for the fifth consecutive quarter. Q4 product order levels grew at about 40% versus the prior year and are well above pre-pandemic levels as customers are increasingly interested in investing in our core automation and software. Both of which are essential to drive the outcomes that come from digital transformation.

Slide 14 provides key financial information for the full year fiscal '21. Reported sales grew 10.5% including over one point coming from acquisitions. Organic sales were up 6.7% led by double-digit growth in our hybrid and discrete end markets and improving process verticals. Full year segment margins remained at about 20% including close to $30 million of onetime accelerated investments mostly in our Software & Control segment. R&D expense was up 14% compared to fiscal '20 and R&D as a percent of sales increased further to 6% of sales in fiscal '21. Our core automation, which excludes the impacts-- Excuse me, our core conversion, which excludes the impact of acquisitions currency and our accelerated one-time investments was 34%. Corporate and others was at just over $20 million.

Mostly related to acquisition costs associated with the Plex acquisition. Adjusted EPS was up 20%, a detailed year over year adjusted EPS walk can be found in the appendix for your reference. Free Cash Flow performance remained strong and was in line with our July expectations. Free Cash Flow conversion was 103% of adjusted income. Finally,ROIC remained well above our target of over 20%. For the year we deployed about $3.3 billion of capital toward acquisitions, dividends and share repurchases in fiscal '21. Our capital structure and liquidity remained strong.

Let's move on to the next Slide 15. Guidance for fiscal '22. As Blake mentioned, we are expecting sales of about $8.2 billion dollars in fiscal '22 up 17.5% at the midpoint of the range. We expect organic sales growth to be in the range of 14% to 17% and about 15.5% at the midpoint of our range. This outlook includes our latest assumptions on supply chain constraints. We expect full year segment operating margins to be about 21.5%. We expect positive price cost for the full year from the additional price increase we implemented this month. At the midpoint of our guidance assumes full year core earnings, conversion of between 30% and 35%. We believe we are in the early stages of a cycle of sustained growth and are making investments to fuel this growth in '22 and beyond.

Our fiscal '22 segment margin and core conversion outlook includes our plans to increase R&D and other growth-related investments by double-digit. We expect the full year adjusted effective tax rate to be around 17%, we do not anticipate any material discrete items to impact tax in fiscal '22. This rate is under current tax law, should tax laws change, we would provide an updated outlook with the impacts from these changes. Our adjusted EPS guidance is $10.50 to $11.10. This compares to fiscal '21 adjusted EPS of $9.43. At the midpoint of the range, this represents a 15% adjusted EPS growth. I will cover a year over year adjusted EPS walk on the next page.

From a calendarization viewpoint based on our current supply chain availability, we expect our first quarter sales to be relatively flat compared to our Q4 and fiscal '21. Following the first quarter we expect sequential sales to improve over the balance of the year. We expect segment margins and the adjusted EPS to decline sequentially in Q1 and then improve throughout the year in line with our sales volume and the timing of price increases. We anticipate recent price increases to having more substantial benefit and subsequent quarter given the timing of when customer agreements are renewed throughout the year. Also as a reminder, fiscal '21 Q1 included a non-recurring $0.45 gain related to the settlement of a legal matter. Finally, we expect full year fiscal '22 Free Cash Flow conversion of about 90% of adjusted income. This reflects $155 million bonus payout for the fiscal '21 performance. $165 million of capital expenditures and funding higher levels of working capital to support higher sales. Our working capital is targeted to be aligned with our historic amount of about 12% of sale. A few comments, additional comments on fiscal '22 guidance. Corporate and other expense is expected to be around $125 million. Net interest expense for fiscal '22 is expected to be about $115 million. And finally, we're assuming average diluted shares outstanding of about $117.5 million shares.

The next Slide 16 provides the adjusted EPS walk from fiscal '21 to fiscal '22 guidance at the midpoint. Moving from left to right, core performance is expected to contribute $2.15 this includes the benefit of higher organic sales, we anticipate price realization will exceed input cost inflation by about $0.10. Our pricing philosophy is built on the high value that we bring our customers. In light of increasing input costs, we have taken several price adjustments this year to mitigate and we are prepared to take additional price actions as needed. The removal of the onetime accelerated investments made in fiscal year '21 will be about $0.20 benefit the one-time gain from a legal matter that was settled in the prior year is $0.45 headwind. Plex will be a $0.15 tailwind in fiscal '22 including the impact of incremental interest. We have included further information showing the impact of Plex in both fiscal '21 and fiscal '22 in our appendix. No real significant changes to what we showed in July. We expect about a $0.05 impact coming from share dilution and the higher tax rate is expected to be about a $0.75 headwind.

Moving on to the next Slide 17, I'll make a few comments on our capital deployment framework. Our long-term capital deployment priorities remain the same. Our first priority is organic growth. After that, we focus capital deployment on inorganic activities. And then, we focus on capital returns to shareholders through our dividend and then share repurchases. In addition to our organic and inorganic investments, our capital deployment plans for fiscal '22 include a focus on delevering. Dividend of about $520 million and share repurchases of $100 million. In summary, our guidance assumes a combination of order and backlog growth to drive this team and 0.5% organic sales at the midpoint and reaches the total sales of over $8 billion. We continue to offset inflationary pressures through additional price actions yielding segment margins of 21.5%. We expect adjusted EPS growth of 15% and continued strong Free Cash Flow. With that, I'll turn it over to Blake for some closing remarks before we start the Q&A.

Blake Moret -- Chairman & CEO

Thanks, Nick. As we look forward to fiscal '22, strong order trends and record backlog underpin a robust top-line outlook. We are making investments in our capacity, technology and people to support our future growth. Our people delivered great results this year, and I want to take a moment to recognize the tremendous work during this especially challenging times. As the world recovers, investments in automation and digital transformation never been more top of mind. Nobody is better positioned to help industrial customers be more resilient, agile and sustainable. As many of you will see at our upcoming Investor Day, we're taking manufacturing to a whole new level and look forward to a great year ahead. Let me now pass the baton back to Jessica to begin the Q&A session.

Jessica Kourakos -- Head of Investor Relations

Thanks, Blake. Before we start the Q&A, I just want to say that we would like to get to as many of you as possible, so please limit yourself to one question and a quick follow-up. Thank you. Press, we'll take our first question.

Questions and Answers:

Operator

Certainly.

[Operator Instructions]

Our first question is from Scott Davis with Melius Research. Your line is open.

Scott Davis -- Melius Research

Good morning, everybody.

Blake Moret -- Chairman & CEO

Good morning.

Nick Gangestad -- CFO

Hi, Scott.

Scott Davis -- Melius Research

Good. What are your customers saying? When you think about kind of issue here was not just labor of materials and cadencing projects. I mean, it seems like everyday we see some sort of multi-billion dollar announcement but there's also the reality that there just so many integrators and other folks who can get this stuff done. So I know your guide for fiscal 1Q is relatively conservative, but you have things snapping back right after that. what are your customers saying at least about their ability or what they think their ability to at least get projects done on time today looks like?

Blake Moret -- Chairman & CEO

No, I think sometimes it's useful to look at our own plans as a manufacturer in our own right and our investments I think are broadly indicative of what a lot of customers in different industries are doing, they're looking to make sure that they have the capacity to meet the current demand but also looking to get the capacity to launch new lines of business and find new ways to win and that's language that we've used, but we're hearing that from a lot of our customers as well. So in some cases it's just meeting the capacity demands. When we look at semiconductor and when we look at Life Sciences in some of these areas, it's to meet current capacity and well-known areas. In other cases, people are looking to launch new lines of business with EV probably being the best known are back. We are very eager be take delivery of our products and one of the things that we have is the intimacy through our own sales people, as well as through our distribution of line of sight to these projects that driving the demand and when they need it. So, we're not just guessing when they might need these products we know of projects they're going into and win those projects are expected to start. To be sure there certainly some delays in those projects that our customers are seeing but they're trying to get these competitive capacity up and running. Just as soon as possible.

Scott Davis -- Melius Research

Yeah, that makes a lot of sense. And how do you think about, I mean I assume your pricing-- you have tremendous pricing power right now. I mean, it has to be some someone's a shortage in the industry overall is that you talk just about price and then I'll pass it on.

Blake Moret -- Chairman & CEO

Yeah, I will make a couple of comments and then Nick can add to that as well. I mean we're looking at expanding margins in the coming year, taking share in some important industries and product areas and building the foundation for the future, and we're doing it with select pricing increases.. I think one of the change that bears mentioning is the tools that we've implemented for pricing have dramatically improved over the last couple of years. So pricing can be a real science with a lot of analytics and I think we've significantly upgraded the tools and the talent so that we can get price where the market bears that but also where we can reserve the right to be selectively aggressive to win share. Nick.

Nick Gangestad -- CFO

Yeah, I'll just down a couple of things, Scott. Our pricing philosophy is built on these high value we are bringing to our customers and what we're seeing with the increasing input cost we have taken several price adjustments this in fiscal year '21 and we're prepared to take additional price actions as needed input cost increase more than what we're anticipating at this point. So we do command premium prices in the market is reflected in our margins, and we continue to focus on the value we are creating for our customers and the relationships we have there.

Scott Davis -- Melius Research

Good luck, guys. Thank you. See you next week.

Nick Gangestad -- CFO

Thanks, Scott.

Blake Moret -- Chairman & CEO

Thank you.

Operator

Our next question is from Andrew Obin with Bank of America. Your line is open.

Andrew Obin -- Bank of America

Hi guys, good morning.

Nick Gangestad -- CFO

Hi, Andrew.

Blake Moret -- Chairman & CEO

Hi, Andrew.

Andrew Obin -- Bank of America

You highlighted AOR plus 18% in the quarter, can you just talk about what are the key drivers and how should we think about the strong exit rate into '22?

Blake Moret -- Chairman & CEO

Yeah. So, we're very happy with the development of AOR both in terms of the percentage growth and then the step change that we received from acquisitions like Plex. And so, we are currently looking at an AOR of over 8% of the company's total and we're continuing on, on that path. If you think about the main elements of AOR in the company starts with software, software subscriptions, software delivered as a service and the associated technical support, which is also delivered as a contracting the bundled with the software or as a separate subscription for software that's still being sold as a perpetual license. But we also have some interesting additional areas cyber security infrastructure as a service. So our industrial data center that comes, it's hardware with the software and the services bundle to be able to monitor network traffic on-premise has been a great offering that we've had. It's a good business in its own right. And it also pulls through a lot of additional opportunities because it's a different set of decision makers.

So those are really the primary areas and we continue to look to expand with the opening of our new stock this year to be able to offer additional services that bought as a subscription as we develop and release organically, develop software gets sold as a service that's running in the cloud, I'm very happy with the robust outlook for growth of existing offerings plus new product introductions, a number of what you'll see next week at Automation Fair.

Andrew Obin -- Bank of America

Yeah, that we'll wait until the Automation Day to hear more about that. But can you just highlight oil and gas improvement, can you give more detail by end market especially North America? I'm working sort of upstream, midstream, brownfield, greenfield just a little bit more color there. Thank you.

Blake Moret -- Chairman & CEO

Yeah. So we did, we were encouraged by the development of oil and gas in the fourth quarter and the outlook for fiscal '22. Our oil and gas is about 60% in upstream with most of the remainder in midstream. So we're not know is doing a whole lot in the downstream side, we do provide power control products and Maverick is doing work downstream often with our safety offering, but the majority of our businesses in the upstream and we were happy to see both sequential and year-over-year growth. In the fourth quarter, we saw particularly strong orders from Sensia and the growth that was contributed to by all of the regions.

Andrew Obin -- Bank of America

Thanks very much.

Blake Moret -- Chairman & CEO

Thanks, Andrew.

Operator

Our next question is from Jeff Sprague with Vertical Research. Your line is open. Jeff Sprague with Vertical Research, your line is open. Please go ahead.

Jeff Sprague -- Vertical Research

I'm sorry, you got me there now. Hey, just a couple of questions. Just first on price, I don't know if you said it, but could you be specific on the amount of price you actually achieved in 2021 and what's embedded in 2022? We see the positive price cost spread obviously of $0.10, but I'm curious on the actual nominal price capture walked here.

Nick Gangestad -- CFO

Yeah, Jeff, we had a little over 1% price growth in fiscal year '21 and we're projecting an approximately 2% net price growth in '22. However, I want to be quick to caution that is based on our current level of cost increases. We are prepared to increase that more if we see additional cost increases coming in, that we hadn't anticipated in our latest price adjustments.

Jeff Sprague -- Vertical Research

And then, also I guess investment spend would be embedded in the core number. I think you said Nick you're growing at double digit, are you growing it actually less than sales growth? I wonder if you could just kind of speak to what the actual rate of growth is actually, is it a tailwind inside that core number?

Nick Gangestad -- CFO

Yeah, just that is accretive to our margins, because it's not growing at the same pace as our sales, but it is in, as I said double digits. It is through the low double digits. And Jeff, just to put some color on it. We see ourselves in the early stages of the cycle of sustained growth and we are making investments in '22 to fuel that growth both in '22 and then beyond. And so, we are increasing our spending in '22 on R&D and other growth-related investments. Some of the places we're investing, Jeff. We're investing in some key products and software development projects, mostly in Software & Control. We're investing in customer-facing selling resources and the addition of some travel and customer facing expenses that have gone down during the pandemic. And we're also expanding investments in our plant capacity. So those are some of the big areas Jeff, where you're seeing investment spend increase in '22.

Jeff Sprague -- Vertical Research

And I'm sorry, if I could just squeeze one more in, Nick, could you decelerate a little bit more on Q1. I mean actually it would be normal for Q1 sales to decline sequentially I think, and you have them flat. So the idea that EPS may decline sequentially does, just jump out a little bit. Maybe just elaborate what's on with price cost or other things to drive to that outcome in the quarter? Thank you.

Nick Gangestad -- CFO

Yeah, Jeff, what we are seeing is our Q1 sequential with Q4 that's really from a revenue standpoint, it's based on what we are anticipating from supply chain constraints and that that will be keeping our revenue flat as we move from Q4 into Q1. From a margin standpoint and an EPS perspective, some of our price increases that we have implemented will be impacting the later quarters of '22 more than they will be impacting the first quarter of '22. So part of what I'm sharing as I say, what we expect for margin in the first quarter of '22 is impacted by the timing of price increases impacting our revenue and our margins as we go through the year. We also expect that cost increases from a year-on-year perspective will be most pronounced in our first quarter. And then from an EPS perspective, I will just point out first quarter of last year we had 45% gain from a legal settlement and that will not be repeating.

Jeff Sprague -- Vertical Research

Thank you.

Blake Moret -- Chairman & CEO

Thanks, Jeff.

Operator

Our next question is from Josh Coveleski with Morgan Stanley, your line is open.

Josh Coveleski -- Morgan Stanley

Hey, good morning guys.

Nick Gangestad -- CFO

Hi, Josh.

Blake Moret -- Chairman & CEO

Hi, Josh.

Josh Coveleski -- Morgan Stanley

First question, I guess on the backlog, you talked about it several times it's a source of strength in the next year. How much of the growth is really kind of catch-up or conversion of maybe this excess are elevated backlog versus maybe commentary on the underlying end markets?

Blake Moret -- Chairman & CEO

So as we talked about backlog of $2.9 billion is that a huge level and we said about 40% of that is Lifecycle Services reflecting the strengthening dynamic of our longer cycle project business, which includes a high process content and then you, of course, have to be product backlog that's being built by those enormous water quarters in Intelligent Devices and also in Software & Control so we have a huge tailwind coming from that. But we see continuing demand, the demand remained strong coming in and so which really is a mix, but the sharply increased sales in '22 is due to strength, secular tailwinds, let's say, investment themes and a number of the industries that we're serving and just in general, as people are building in resilience and agility into their basic operations. We think that that is part of what's being reflected in our orders intake and the subsequent sales growth in '22. And we're making the investments to be a beneficiary of those trends beyond '22 as well.

Josh Coveleski -- Morgan Stanley

Okay. And then, maybe just a coincidence, but everything from an end market perspective up 15% is is pretty strong but also strangely level. I guess, on one hand maybe a good economic indicator by also says nothing at the end market basis sort of standing out. Is there anything that can be added to that or anything, maybe at the product level that tells a different story?

Blake Moret -- Chairman & CEO

Sure. I think if you go one level deeper in some of those end markets in automotive obviously, EV investment for capital projects is coming out. And so, that's at a high level. If you look at Life Sciences, there is obviously the work there associated with COVID treatments and vaccines. We're a little surprised by the uniformity, but I think each one has its own story. Oil and gas, we love it to be part of the pack again, so to speak. So I think if you go for each one you can see that, and then obviously there is some regional variation as well.

Josh Coveleski -- Morgan Stanley

Got it. That's helpful. That's all I got.

Blake Moret -- Chairman & CEO

Thanks Josh.

Operator

Our next question is from Julian Mitchell with Barclays. Your line is open.

Julian Mitchell -- Barclays

Hi, good morning. I just wanted to follow up on the Free Cash Flow topic. Nick, I know you made some comments around that in the prepared remarks, but the Free Cash Flow, I think is guided about $1.1 billion, that would imply the same Free Cash Flow dollar number for five years in a row now. So I just wondered if there's something maybe in the business mix is shifting toward more ARR or more software focused is becoming a drag on the cash flow near term, is that as the business model shifts or do you just view it as each year? There is some one-time headwinds that are keeping that Free Cash Flow stuck at that number even as the sales and adjusted profit is growing?

Nick Gangestad -- CFO

Yeah. Julian, the biggest story in the 90% Free Cash Flow conversion for us in '22 is really the higher revenues and working capital that we're putting in place to go with those higher revenues. That's the single biggest thing. Secondary things that we are seeing Julian are the payout of our bonus in '22 related to the '21 performance, and then we're also increasing our capex investment in light of the higher demand for our products. But no, in terms of our mix and anything going on from that perspective that's not really having an impact. Julian.

Julian Mitchell -- Barclays

Understood. Thank you. And then, just trying to follow up on the topic of backlog and conversion. So your backlog is worth about a third of your fiscal '22 revenue guide and you said it was $2.9 billion the guide is at. I just wondered as you look at backlog conversion today is the main assumption that's it's slower right now because of supply constraints that conversion into revenue accelerates from January, February, and also your incoming orders pace continues to grow over the balance of the year. Is that the way to think about backlog and orders?

Blake Moret -- Chairman & CEO

In a word, yes, that's right. And I should mention the quality of the backlog and we think it's good since it's a higher percentage of products than we would normally expect in terms of a traditional split of our backlog because of the longer lead times with some of those products.

Julian Mitchell -- Barclays

Perfect, thank you very much.

Blake Moret -- Chairman & CEO

Thank you.

Operator

Our next question is from Steve Tusa of JPMorgan. Your line is open.

Steve Tusa -- JP Morgan

Hi, good morning.

Blake Moret -- Chairman & CEO

Hi, Steve.

Steve Tusa -- JP Morgan

Obviously just on this topic of investment spend, I think you guys have this like bucket is like $2 billion bucks that you use on the P&L to talk about investment spend. I think you threw in capex in the discussion with maybe Jeff, it was. What is that $2 billion going to grow this year and then what is the number net of the decline in one-time? So, if you include the one-time impact, what is the year-over-year growth or absolute had one, have you want to talk about it on that $2 billion of investment spend that typically run through the P&L?

Nick Gangestad -- CFO

Steve, we had approximately $30 million of one-time spend that we did in fiscal year '21 that's not repeating. Then to our total fiscal year '22 of the roughly $2 billion of investment spend, that's what we're seeing is going up double-digit in '22 low-double digits, actually. So there's a little over $200 million of the increase there in investment spend.

Steve Tusa -- JP Morgan

Okay, got it. And then, any other parts of the bridge that you want to call out on that? On this front, whether it's some of the incentive comp-- Sorry, I was on a call earlier you may have highlighted, but anything else in the bridge moving around?

Nick Gangestad -- CFO

We have some one times that impacted us in fiscal year '21 that we're pointing out that don't will not repeat. Also, the tax rate is based on current tax law, this tax law does change, we would update what we expect for that. But Steve, those are a couple of the things I just point out.

Steve Tusa -- JP Morgan

Okay, great, thanks a lot.

Blake Moret -- Chairman & CEO

Thanks, Steve.

Operator

Our next question is from Andy Kaplowitz of Citigroup. Your line is open.

Andy Kaplowitz -- Citigroup

Hey, good morning guys.

Blake Moret -- Chairman & CEO

Hey, Andy.

Nick Gangestad -- CFO

Hey, Andy.

Andy Kaplowitz -- Citigroup

Blake, this is your third quarter in a row with orders and $2 billion or more and they've continued higher without larger projects. This quarter, I know we've asked you this before, but do you get any sense that some of the strength has been customers getting in line or double ordering. And given, it still seems early in your process automation recovery and the inorganic additions you've made at the company, is it reasonable to think that orders can maintain or even grow from these levels over the next few quarters?

Blake Moret -- Chairman & CEO

Yeah. So in Q4, there certainly were some pull-ins in the quarter. But as we talk to our sales force and distribution, we think it's well under 10% of the total. So we think the vast majority of what we're seeing is underlying demand and it's broad based across multiple industries. So we do believe and we're seeing the same to October, we continue to see strong demand coming from customers as some of these secular tailwinds that we talked about and you pick the industry are investing, whether it's in transportation or Food and Beverage, Life Sciences, Chemical is expected to have decent growth in the coming year for building building chemicals and packaging chemicals. So, you can see it from a variety of places. And so, we're very optimistic about continued order growth in the year, particularly because we're talking to customers about new things, new capabilities that four to six months ago, we didn't have in our portfolio, but there's a pretty significant expansion of what we can talk to customers about in all three of our business segments.

Andy Kaplowitz -- Citigroup

And Blake, I wanted to follow up on from the comments you made on EV obviously during the quarter, there were several additional announcements of planned capex, but some of your customers EV battery facilities. And you mentioned that your EV business led 15% automotive growth despite a big production declines from any of your customers. So could you give us more color into what you're expecting for EV-related business in FY '22? We know you're saying automotive up mid-teens and how much of that is just auto build recovery versus what could be the opportunity for you in EV?

Blake Moret -- Chairman & CEO

Yeah, I think the majority of it is getting new models on the road. That's our these traditional brand owners are getting out there with EV and how the start-ups stay in business getting a return offerings the investments that have been made in them. For scale, you think about automotive being about 8% of Rockwell's total business with EV about a quarter of that, so about 25%. And we expect over multiple years EV and associated battery are going to be a strong driver of growth for us and that's around the world. I mean, you look at the wins that we're getting in China associated with battery and EV and it's clearly a calling card for us. We look at wins with our EMEA software. The opportunities that we have with Plex in the tier providers. All of these things I think are positive for us.

Andy Kaplowitz -- Citigroup

I appreciate it, Blake

Blake Moret -- Chairman & CEO

Yeah, thanks.

Operator

Our next question is from Markus R. Meyer with UBS. Your line is open.

Markus R. Meyer -- UBS

Yes. Hi, good morning.

Blake Moret -- Chairman & CEO

Good morning, Markus.

Markus R. Meyer -- UBS

I wanted to comeback-- Hey, good morning. I wanted to come back to backlog and pricing and link the two. I wonder, how much agility you have in the listing backlog to adjust prices there, if need be?

Nick Gangestad -- CFO

Markus, the the significant majority of our backlog, we are not repricing. there is a relatively small portion of our backlog that has more dynamic prices that we can adjust, so we are not changing the prices in our product backlog. But as Blake mentioned earlier, when we look at our total backlog and as we work through some of that in '22 it's favorable. It's favorable in terms of the mix that we're seeing there. So we don't expect it to be derivatives we actually expected to be accretive to us in '22.

Markus R. Meyer -- UBS

That's helpful, thanks. And then, Blake, you've mentioned share gain in motion. I wonder if you could elaborate a little bit on that. Which region, which product categories and what the ultimate driver there?

Blake Moret -- Chairman & CEO

So, I mentioned our motion control and we're seeing share gains from a couple of places. First of all, our traditional products out of control the motion of the more traditional motor. We had some very strong products there and their fit and an overall integrated control and information architecture are doing very well. We had some product releases of organically develop products last year that get to the more price sensitive markets like China and we've seen some good uptick in our Kinetix products there. But nearly, I would talk especially about in the last few quarters it's independent Cart Technology and so it's linear motion control and due to its ability to save space on machinery acceleration and deceleration raise the integration as part a fundamental part of the machinery really gives us a very differentiated offering and a variety of industries around the world. So, it can be used in power transmission in vehicles, it can be used in entire building in packaging for Food and Beverage and Life Sciences. There's even some interesting applications that we're working on in mining. And so, it's a very personal setup by technology. We bought two small companies to get into that to complement actually a technology we had for many years and then will continue to invest and build it into the overall automation architecture. So we're very happy with the growth that we're seeing there which continues at strong double digits.

Jessica Kourakos -- Head of Investor Relations

Operator, we'll take one last question.

Operator

Certainly. Our final question is from Noah Kaye with Oppenheimer. Your line is open.

Noah Kaye -- Oppenheimer

Thanks for taking the question. Certainly in the acquisition of Nevada seem very timely with supply chain management challenges that's in rent and across industries and Blake you've often talked about Rockwell's own manufacturing journey being a great test case for customers. I'm curious, how do you think it's very having in Nevada and the ability to manage supply chain in the cloud solution? How might that impact or be able to impact you going forward just to gain increased control and visibility of your own supply chain and how do you see it benefiting the customers?

Blake Moret -- Chairman & CEO

Yeah. What we're excited about using the technology in our own operations. We've got a pretty good system on the floor and taking that data into information systems today, but one of the real excitement for a big company like Rockwell in a cloud-based solution is the ease of implementation. For the same reasons that small and medium-sized businesses like it because they may not have an IT department to be able to manage a big fleet of computers in their plants. The ability to have a cloud-based approach is exciting when we make new acquisitions. So when we open more agile plants around the world, the heavy lift that would come with more traditional systems may not be what's most appropriate.

On the other hand, we're going to continue to do well with our on-prem in the US offering because you have a lot of companies, particularly those in regulated industries that cannot change quickly, they need to have the ability to maintain a system with no change for many years. And so that on-prem system, but can be very helpful there. So we see the two coexisting for a long time to come.

Noah Kaye -- Oppenheimer

Thanks, that's helpful. And then, just curious if you can comment on any potential shifts in customer spending from capex to opex, you mentioned Sensia seems to be recovering. I'm wondering as many of the customer base, particularly on the process side are being relatively disciplined with capex investments, whether this is a significant transition you're seeing and any potential wallet share gains as a result?

Blake Moret -- Chairman & CEO

Well, we think in Sensia for oil and gas, we think the fundamental value proposition is still as strong as when we entered into it and we are seeing that reflected in our orders. In mining, as you said, those companies are being disciplined with their capital spend even with super high commodity prices, we haven't seen a dramatic increase in the release of funds for big capital expenditures. Some of that's going to have to come because they all and stay in business by having the ability to efficiently during the resources to market and we're talking to them about quotes there is activity there, but we haven't seen that manifest itself yet. I did mentioned earlier chemical is a process verticals, but we do see good growth in the teams over the year and it's for things like construction resins as well as by chemicals used in packaging because people are still getting lots of products in boxes deliver to them.

Noah Kaye -- Oppenheimer

Blake, perfect. Thanks, and looking forward to next week.

Blake Moret -- Chairman & CEO

Yeah. We'll see you there.

Jessica Kourakos -- Head of Investor Relations

Operator.

Operator

This concludes the Q&A session, I'd like to turn the call back over to Miss Kourakos for any closing remarks.

Jessica Kourakos -- Head of Investor Relations

Thanks, Chris. Thanks everyone for joining us. We look forward to seeing you next week hopefully, and have a great day.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Jessica Kourakos -- Head of Investor Relations

Blake Moret -- Chairman & CEO

Nick Gangestad -- CFO

Scott Davis -- Melius Research

Andrew Obin -- Bank of America

Jeff Sprague -- Vertical Research

Josh Coveleski -- Morgan Stanley

Julian Mitchell -- Barclays

Steve Tusa -- JP Morgan

Andy Kaplowitz -- Citigroup

Markus R. Meyer -- UBS

Noah Kaye -- Oppenheimer

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