If re-shoring were happening, Rockwell Automation would know

Rockwell Automation, essentially a maker of high-tech assembly lines, surged on Wednesday after posting results that beat analyst expectations and upgrading its outlook for earnings per share — after months of declining expectations from Wall Street.

It’s a healthy move for a stock that’s gone largely nowhere for the last couple years, a cooling-off period following a surge of outperformance during the Covid-era supply chain disruptions, labor shortages, and surging inflation, all of which prompted companies to boost spending on automation processes to increase efficiency.

In theory, the Trump administration’s push to reinvigorate US manufacturing — one of the many explanations the White House offers for its fixation on tariffs — should benefit companies like Rockwell, which could help build those factories. But that’s only if the uncertainty generated by the White House’s on-again, off-again approach to tariffs doesn’t paralyze investment and cause a recession.

Rockwell CEO Blake Moret offered some interesting thoughts on those dynamics in the company’s post-earnings conference call.

“The current trade and policy uncertainty has impacted some large capex projects across our customer base. We saw some project delays in automotive and energy and some deferrals of more discretionary spend in digital services,” Moret said. “These customers are seeking additional certainty about the impact tariffs will have on their cost base and whether the volatility will impact their demand.”

Analysts followed up in the Q&A section of the call, which we edited, condensed, and excerpted below:

Scott Davis, Melius Research: You guys are sitting in a position of having the most visibility into this balance between re-shoring acceleration and the macro realities and concerns folks are having. How are your customers thinking through that? Are they accelerating re-shoring? Are they hunkering down?

Moret: There is still a generally optimistic long-term view among most of our customers, especially those with high exposure to the US, because the idea of US manufacturing as a good thing for the US economy resonates with a lot of us. And of course, Rockwell is a net beneficiary of that.

Where we are seeing delays, as we analyze the projects that haven't moved forward, the underlying reasons fall into a few different categories. First is concern about cost certainty, which, you know, a lot of that would come from tariffs. Automotive is obviously affected by that, given the amount of content from around the world there.

We heard some comments regarding interest rates as well.

Another underlying reason would be concerns about the demand from our customers’ end markets. I mentioned lower commodity prices in the US that will affect oil and gas and a little bit of mining.

Chris Snyder, Morgan Stanley: Around the market demand trends, it’s understandable and makes sense that with all the uncertainty out there, maybe it’s hard to move forward with a big project if you don’t know how much it costs and you don’t know if the rules are changing.

But when you guys talk to customers, you know, is there an expectation that as visibility starts to come through, we could see more of these projects unlocking in the coming quarters?

Moret: We actually do expect that these customers are going to pull the trigger on some of these investments. We’re not going to call a specific date or quarter on that. But we saw some of those projects come in April, and we think we have a pretty good handle on what they’re grappling with.

All manufacturers are looking for more certainty and consistency with the tariffs and the costs that might come along with tariffs, as well as making sure that the demand is still there from their end customers.

And in the majority of cases, they expect that this is a pause. Not anything that that lasts for a long, long time.

Of course, the length of that “pause” to investment plans is crucial as to whether we have a serious slowdown or recession. Given that the world’s two largest economies are only at the very early stages of potential trade talks, it seems like it could be a while.