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Rating Action:

Moody's assigns A3 rating to Rockwell Automation's new unsecured notes

27 Feb 2019

New York, February 27, 2019 -- Moody's Investors Service ("Moody's") assigned an A3 rating to Rockwell Automation Inc.'s ("Rockwell") new unsecured notes. The issuance does not impact other ratings of Rockwell, including the A3 senior unsecured or P-2 short-term ratings. The rating outlook is stable.

RATINGS RATIONALE

Rockwell's debt ratings reflect the company's strong market position and technological leadership in the high growth discrete automation sector, expectations for sustained EBITA margins above 19% and free cash flows in excess of $600 million in 2019. The company maintains moderate debt levels, with debt to EBITDA likely to remain in the low 2x range. Rockwell's growth strategy does not rely on large acquisitions, which will help to keep leverage close to current levels. However, with LTM revenues of $6.7 billion, we view Rockwell to be relatively small when compared to other industrial peers. As well, Rockwell's revenue is largely exposed to the cyclical end-markets such as industrial and commodity-related sectors. Slowdowns in historically high growth regions such as China could also negatively impact Rockwell's financial performance

Proceeds from the notes will be used for commercial paper repayment and general corporate purposes.

The stable rating outlook reflects our expectations of modest (3-5%) organic revenue growth through fiscal 2020, based on ongoing strong demand for Logix and high growth Information Solutions business. Moody's estimates that the company will maintain EBITA margins of around 19% over this period while continuing to improve its already impressive return on assets. Importantly, we expect that management will remain measured with respect to capital allocation and broader financial policies, with tempered shareholder return initiatives.

Trends that would support higher ratings include further profitable expansion of the company's international business, demonstration that the cost structure has become more flexible to manage downside vulnerability in future operating results, and that the capital structure remains appropriate for a sector which can experience significant volatility. Additionally, the company would need to demonstrate that it can sustain EBITA margins greater that 15%, debt to EBITDA of less than 2x, and retained cash flow to debt in excess of 35% to support higher ratings.

The rating could be downgraded if we expect deterioration in revenue, margins and/or cash flow performance, as triggered either by a weakening market position or softening macroeconomic conditions. Lower ratings could also be warranted if the company undertakes a major debt funded acquisition, or if ongoing share repurchase activity results in a material weakening of the balance sheet. In conjunction with an eroding liquidity profile, ratings could be downgraded of the company sustains EBITA margins below 12%, debt to EBITDA in excess of 2.5x, or retained cash flow to debt of less than 15%.

The following summarizes today's rating action:

Assignments:

..Issuer: Rockwell Automation, Inc.

....Senior Unsecured Regular Bond/Debenture, Assigned A3

The principal methodology used in these ratings was Global Manufacturing Companies published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Rockwell Automation, Inc., headquartered in Milwaukee, WI, is a leading global provider of industrial automation, control and information solutions that help manufacturers optimize productivity and safety. The company has two principal business segments: Control Products & Solutions, and the more profitable Architecture & Software. Rockwell reported LTM December 2018 revenue of $6.7 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

David Berge
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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