Questions. At this time, I would like to turn the call over to Steve Etzel, Vice President of Investor Relations and Treasurer. Mr. Etzel, please go ahead.
Good morning and thank you for joining us for Rockwell Automation's Q1 fiscal 2019 earnings release conference call. With me today is Blake Morette, our Chairman and CEO and Patrick Gorris, 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 reconciliations to non GAAP measures. A webcast of this call will be available at that website for replay for the next 30 days.
Before we get started, I need to remind you that our comments will include statements related 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 all of our SEC filings. So with that, I'll hand
the call over to Blake. Thanks, Steve, and good morning, everyone.
Thank you for joining us on the call today. I'll start with some key points for the quarter, so please turn to Page 3 in the slide deck. I'm pleased with our results for the quarter. Organic sales were strong, up almost 6% and well above expectations. From a vertical perspective, growth was led by Consumer and Heavy Industries.
In Consumer, Food and Beverage and Life Sciences were strong. Heavy Industries growth was led by mining, pulp and paper and metals. Oil and gas grew slightly above the company average. Within transportation, automotive was down about 10% in the quarter, weaker than expected, and tire was up low single digits. In the quarter, Logic grew 7% organically and Process grew 5%.
Revenue from information solutions and connected services, which is a measure of adoption of new value from the connected enterprise, once again profitably grew double digits. Commenting on regional performance in the quarter. North America, which for us is the combination of the U. S. And Canada, grew 6% organically.
We saw good growth across a wide range of industries with the exception of automotive, which was weak. EMEA was down slightly in the quarter. Growth in consumer verticals was offset by declines in heavy industries. Asia grew 4%, with most countries in the region contributing to growth. China sales were up mid single digits.
Latin America sales were up 20%. We saw good growth in Brazil, and Chile was strong due to increased mining activity. As you may recall, last year, we won a big order with Codelco, and we are starting to see this in our results. I'll make a few additional comments about our Q1 results. Adjusted EPS was up 13% and segment operating margin was up 40 basis points year over year.
Book to bill performance for our Solutions and Services businesses was a strong 1.12 in Q1. We grew backlog in the quarter. Patrick will elaborate on our Q1 financial performance in his remarks. Let's move on now to the macro environment and our current outlook for full year fiscal 2019. We see continuing uncertainty due to trade tensions and geopolitical risks.
However, forecasts continue to call for industrial production growth. We had a good first quarter and project quoting activity was strong. With 1 quarter behind us, our full year outlook for organic sales growth and adjusted EPS guidance remains unchanged. We continue to expect our fiscal 2019 organic sales to be up 5.2% year over year at midpoint of guidance. Currency is now expected to reduce growth by 1.5 percentage points.
Including the revised impact of currency, our fiscal 2019 guidance is sales of about $6,900,000,000 Our guidance for adjusted EPS remains a range of $8.85 to $9.25 Now, I'll turn it over to Patrick to provide more detail about our Q1 results and our 2019 sales and earnings guidance.
Thank you, Blake, and good morning, everyone. Before I go through our results and outlook, I want to mention that we made some reporting changes starting the Q1 of fiscal 2019. We outlined these changes in today's press release, and I will cover them briefly when I get to Slide 9 in the deck. For compatibility purposes, fiscal 2018 numbers have been recast to conform to fiscal 2019 reporting. With that said, we'll start on Slide 4, key financial information, Q1.
As Blake mentioned, we had a good Q1 of the fiscal year. We reported sales up 3.5%. Organic growth was 5.7%, about 200 basis points better than we expected. Currency translation was about a 2 point headwind to sales growth, worse than expected. Segment operating margin was very strong at 22.8%, up 40 basis points compared to last year.
A margin tailwind from good organic growth was partially offset by higher investment spending. Earnings conversion, whether you include or exclude the impact of currency, was between 30% 35%. General corporate net expense of $22,000,000 was down $2,000,000 compared to last year. Adjusted EPS of $2.21 was $0.25 compared to the Q1 of last year, an increase of 13%. The year over year increase in adjusted EPS is primarily due to the benefit of higher sales and lower share count, partially offset by higher investment spending.
As expected, the net impact of tariffs was a small headwind. 1st quarter adjusted EPS performance was significantly better than we expected given stronger than expected organic sales growth and somewhat lower than expected investment spending. Free cash flow was $170,000,000 in the quarter or 63% of adjusted income. During the Q1, we paid the annual incentives that our employees earned in fiscal 2018. A few additional items to cover not shown on the slide.
For adjusted EPS, average diluted shares outstanding in the quarter were 100 and 21,500,000, down 8,600,000 or about 7% from last year. We repurchased about 1,800,000 shares in the quarter at a cost of $292,800,000 This is slightly ahead of pace to get to our $1,000,000,000 full year target. At December 31, we had $816,000,000 remaining under our share repurchase authorization. Slide 5 provides the sales and margin performance overview for the Architecture and Software segment. This segment had 2.4% reported sales growth.
Organic sales were up 4.6% year over year. Currency translation decreased sales by 2.2%. For the quarter, segment margin increased 100 basis points year over year to a very strong 31.5%. Operating leverage associated with the sales growth was partially offset by higher investment spending. Moving on to Slide 6, Control Products and Solutions.
Reported sales were up 4.5% for the segments. Organic sales growth was 6.6% and currency translation reduced sales by 2.1%. Growth in our solutions and services businesses in this segment was strong at about 8%. The product businesses in this segment were up about 5% on an organic basis. Operating margin for this segment was up slightly compared to Q1 last year, primarily due to higher sales offset by higher investment spending.
As Blake mentioned, book to bill performance in our solutions and services businesses in this segment was 1.12 in Q1. Next Slide 7 provides an overview of our sales performance by region. Blake covered most of this in this slide in his remarks. I will just mention that growth was broad based across geographies with the exception of EMEA. Also, we saw good growth in emerging markets, which were up high single digits compared to last year.
This takes us to Slide 8, guidance. We now predict sales of about $6,900,000,000 Our organic sales growth range remains unchanged at 3.7% to 6.7%. We updated our currency assumptions and we now expect the headwind from currency translation to be closer to 1.5%. We continue to expect segment operating margin of about 22%. Our expected adjusted effective tax rate for fiscal 2019 remains about 19.5%.
And as Blake mentioned, we are maintaining our adjusted EPS guidance range of $8.85 to $9.25 With respect to tariffs, we still expect to offset the incremental costs through supply chain changes and negotiations with vendors, as well as targeted price increases on affected products. Our supply chain and pricing folks have done tremendous work in this area, and we remain on track to neutralize the impact of tariffs for fiscal 2019. We continue to project free cash flow conversion of about 100% of adjusted income. As to general corporate net, we now project it to be about $95,000,000 As a reminder, general corporate net now excludes interest income. Net interest expense for fiscal 2019 is expected to be about $90,000,000 Before I turn it back over to Blake, let me add a couple of comments on Slide 9.
As I mentioned at the beginning of this call, we made some reporting changes effective the Q1 of fiscal 2019. As you can see on this slide, these changes include the adoption of ASC 606 revenue recognition, as well as the new standard that defines operating and non operating pension and post retirement benefit costs. We transferred some business activities from one segment to the other and we also combined U. S. And Canada into North America consistent with the way we run this region.
Finally, we removed interest income from general corporate net. Our press release provides additional detail related to these changes. In addition, Slides 10 11 of this deck provide a summary of the changes as well as a walk for fiscal 2018 Q1 results. Today, updated data books will be available on our Web site that will include prior year financial results, recast to the new reporting format. After our earnings call, Steve will be available to cover any additional details and questions you may have about the reporting changes.
With that, I'll hand it back
to you, Blake. Thanks, Patrick. I'll make some additional remarks related to the execution of our strategy. We are performing well in our key focus areas. There are 3 components of our growth strategy, which are share gains in our core platforms, double digit growth in information solutions and connected services, and a point or more of growth per year from inorganic investments.
Core platform performance in the quarter was highlighted by 7% Logix growth. Our strategic partnership with PTC continues to gain momentum. We've had wins across all regions and in our key industry verticals, and the pipeline of opportunities is growing every day. We're also working well with PTC to converge our IoT technology roadmaps. Our pipeline for inorganic investments remains robust.
Yesterday, we announced the acquisition of Emulate3d, a U. K.-based software company whose products digitally simulate and emulate industrial automation systems. This software enables customers to virtually test machine and system designs before incurring manufacturing and automation costs and committing to a final design. Emulate3d was a member of our partner network, and we've seen customers benefit by combining their solutions with our technology. Emulate 3 d software will become part of our FactoryTalk design suite.
For each of the components of our growth strategy, we have the financial flexibility to execute, all within the capital deployment framework described during Investor Day. An industry where this strategy is delivering tangible results is life sciences, where we've had several years of good growth. Pharmaceutical companies benefit from our multi disciplined Logix control platform, which addresses discrete, batch and continuous process applications. Customers are implementing our independent cart motion technology for greater throughput. And our software offerings such as MES and FactoryTalk Innovation Suite are important competitive differentiators.
Our connected services offerings also provide us another way to win. Recently, we received another order from Pfizer to help them increase cybersecurity at their global manufacturing facilities. We will plan, implement and support security technology and solutions, along with key strategic partners across Pfizer's global manufacturing supply chain. We're becoming more important to customers in every industry on their individual journeys to become more productive. Finally, I want to thank our employees, partners and suppliers for their contributions to a good start to the fiscal year.
Our entire organization is energized and excited about our new offerings and the opportunities that are ahead of us. And with that, I'll turn it over to Steve to start the Q and A. Steve? Before we start the Q and 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. Operator, let's take our first question.
Your first question comes from Rich Kwas with Wells Fargo Securities. Your line is open. Your next question comes from John Inch with Gordon Haskett. Your line is open.
Thank you. Good morning, everyone.
Good morning.
Can you hear me? Yes. Good morning, guys. Hey, so just in terms of the quarter versus the flat EPS expectation and your result, I think Patrick you mentioned it was driven basically by higher sales. Where did you actually see the surprise to the upside and do you think those trends continue for the rest of the year?
Yes. So for the Q1, all regions except EMEA came in better than expectations, particularly Latin America, which was up 20%. From an industry perspective, some of the heavy industries were better than we expected. In those, we include metals, pulp and paper. Oil and gas was a little bit better as well.
And then consumer was better, particularly life science, which had very strong growth. So I'd say across multiple regions and particularly heavy and life sciences.
And Patrick, the reason for not changing your guidance given the beat is because you expect things to soften still given sort of uncertain international markets. Are there any other clues? Like, and how did January do as part of the cadence toward the rest of the year?
January is consistent with what we have in our guidance for the full year. I think one of the ways you can think about this, John, is we have 1 quarter behind us.
Meaning you're not anticipating a slowing or you're just not sure? I mean I'm
No. We've had 1 quarter behind us, which was a little bit better than we expected, and we see no reason at this time to change our guidance for the full year.
I got it. And then my follow-up is really on the cadence of investment spending. If I remember, I think you said you spent $70,000,000 to $80,000,000 in fiscal 2018 and you're going to spend $3,000,000 to $4,000,000 more with much of that focused in the Q1. Are you still on track for that? And what actually did you spend in the Q1 with respect to investment spending?
And did that help margins in any way versus kind of heading into the quarter versus your thoughts around investment spending?
Yes. So you remember well, John, what we said was that we expected our investment spend to be up about $70,000,000 7.0 for the full year. Most of that we expect in the first half of this year. We still expect that. The timing is just a little bit different.
Q1 was light by about $10,000,000 Q1 spend was up about 5% year over year. That's about 25 percent. We expect the first half of the year to of the $70,000,000 we think about 2 thirds of that will happen in the first half of the year. Q1 was just a little bit lighter than we expected.
About $10,000,000 Okay. Thanks very much. Appreciate it. Thanks, John.
Next question comes from Scott Davis with Melius Research. Your line is open.
Hi. Good morning, guys.
Good morning, Scott.
Starting to get a little bit concerned about earnings after Caterpillar yesterday, but you guys came up with a pretty strong number. I mean, what some of the folks out there have seen real weakness in China and some haven't, but you guys clearly haven't seen much. I mean, can you give us a little local color?
So China is mid single digits up, and some of the industries that contributed to the growth are mass transit. So the metro system continues to be an area where we differentiate and have had good wins, and this year continues that. Life Sciences, as we mentioned before, globally was good, and China is adopting a lot of the new value that we provide in life sciences to complement the basic control. And then there were other industries of chemical, metals, still growth in semiconductor and even automotive in China for the quarter.
Interesting. So auto was going to be my next question. And then help us understand the divergence between SAAR and CapEx and OpEx obviously. I mean, SAAR in China is struggling and inventories are rising, so that could be a really tough year. But capital spending seems to be on some sort of solid footing.
Is that correct? Or how would you view the outlook there?
Yes. I would say globally for auto, CapEx is flat and there are challenges for the uses of CapEx beyond just plant expansions and capacity as they're devoting some of that CapEx spend to new technologies like electric vehicles and autonomous vehicles. In China, we continue to see gains in the electric vehicle market. One of the recent wins was with Howson providing powertrain for a local indigenous Chinese brand owner. And remember, we essentially reentered that powertrain market just a few years ago, and China is one of the places where we're winning not only for the joint ventures that involve American companies, but for indigenous Chinese manufacturers as well.
The SAAR count, if it's weak, will eventually have some impact on our business. But of course, the model changes are the direct influence on our growth in automotive.
Thank you, Scott.
Next question comes from Steve Tusa with JPMorgan. Your line is open.
Hi, guys. Good morning.
Good morning, Steve.
Can you just talk about what you're seeing in kind of the global machine tool industry, whether it's some of those guys that operate out of Europe and into China, whether it's on the packaging side or elsewhere? Seems to us to follow on Scott's question, but there's a lot of foreign component suppliers that sell into that chain that are seeing pronounced weakness in destocking. So I'm just curious as to kind of what you guys are seeing on that front.
Yes. I'll make a couple of comments on that and then Patrick may have something to add. We think that the moderation, let's say, in China is contributing to some extent to the weaker results that we see in EMEA. That being said, when we talk about machine tool, there's a high component of that that's going to be CNC oriented versus PLC or logics oriented. And so we may be relatively less exposed in the metalworking areas.
Yes. Steve, I would only add that our OEM business globally was up a little bit less than the company average, so low single digits in the quarter. And EMEA was one of the weakest regions there.
Okay. And just to be clear for kind of the rest of the year, can you maybe give us a bit of a rundown on the major, what you expect for the major segments and how those would trend? I know that you guys talked about last call auto accelerating. Maybe I missed that in the beginning, but is that still expected to be up this year, transportation? Maybe just give us a little bit of color on what's embedded by vertical in the guidance now?
And again, any calibrations there?
Sure. So what we said last quarter, Steve, is that we expected auto to be flat for fiscal 2019. Given the Q1 and our current outlook, we think that auto will be down mid single digits for the year. We think at this point that, that will be offset by some of the better growth we've seen in some of the heavy industries that I just mentioned in the about the Q1, but also Life Sciences. Within Consumer, Life Sciences and Food and Beverage are doing quite well.
So versus our, I call it, November guidance, automotive now expected to be down mid single digits for the full year, heavy industry, a little bit better, and then also strong consumer, particularly life sciences and after that food and beverage.
Thanks. Great color as always. Appreciate it.
Thanks, Steve.
Your next question comes from Julian Mitchell with Barclays. Your line is open.
Hi, good morning. Maybe just the first good morning. Maybe just the first question around process markets. Your growth rate, I think, on sales slowed to about 5%, having been at double digits in the prior quarter. Are you starting to see any impact from oil or just the broader macro uncertainty starting to weigh on project activity?
And maybe any updated thoughts on how you see process industries growing this year versus the group average?
So in the quarter, oil and gas was up slightly above the company average. We continue to make progress in Process Industries, and of course, that's concentrated in the batch of verticals that we call heavy industries. Just as a reminder, that metric of process really measures the adoption of our process control technology and does not include that metric. The other things that we sell to industries like oil and gas and pulp and paper and metals, which would have a lot of the intelligent motor control as well. So we continue to see good growth in those industries, and we expect that to continue with heavy industries contributing to our growth for the balance of
the year. And Julien, for the full year, we expect a process as we define it to be up at or slightly above the company average.
Understood. Thank you. And then just circling back on a geographic basis, if you could talk a little bit about the EMEA region. I think you talked about low single digit growth. You had a slight decline organically in the Q1.
So how quickly do we think that, that recovers really? Is it solely to do with China as you talked about? Or do you think there's some domestic aspects which should drive up EMEA growth over the balance of the year in certain verticals?
Yes. We think obviously it's a little bit broader in EMEA than just China, Julien. Obviously, growth in EMEA generally from a macro point of view has slowed. We've seen that over the last 3, 4 quarters. From a vertical perspective, what we see in that region is that consumer is still doing pretty well.
It's up mid single digits. Heavy industry was down as was auto and consumer growth not strong enough to offset the weakness in heavy and in auto. Actually, our order intake in the Q1 in EMEA was actually pretty decent, and we expect EMEA for the full year to be up but low single digits.
Yes. I think that order intake helped us build backlog, which also informs our outlook in the region. And just within transportation, auto was down and was somewhat canceled out by actual growth in the tire vertical.
Understood. So we should see EMEA improving in fairly short order then in terms of your sales growth?
Our expectation is that we see some year over year growth in that region in the back half of the year.
Fantastic. Thank you very much.
Thanks, Julian.
Next question comes from Rich Kwas with Wells Fargo. Your line is open.
Hey, good morning, everyone. Sorry, I'm juggling a couple of things here this morning. So I might have missed this, but on auto, just on in North America, was that down year over year within the context of that being down overall for the quarter?
It was, Rich. It was down. So auto was down about 10% globally and similar to North America in Q1.
Okay.
And I assume that was
Yes, we think that obviously, we see some weakness in MRO in auto. We've seen some project delays generally. But at the same time, we see EV and powertrain, as Blake was mentioning, continues to be strong. We still expect double digit. We see and expect double digit growth there.
It's just not big enough yet to offset the weakness elsewhere in that vertical.
And then just on the North American with the Detroit based OEs, it was a decent launch cadence this year year over year. So is that just something where you're not seeing as much wallet of that in terms of the mix? Or is there something that we're missing when we're looking at the broader numbers?
No. We do expect to participate actually even more broadly in some of those cases. So with some of the new value, particularly in information solutions and connected services, we actually expect on some of those launches to expand what our traditional content may have been.
And I think some of it also goes back, Rich, to the MRO comment that I was making.
Okay. Okay. And then last one on, I think, John's earlier question around the guide. So what gets you to the top end of the guide in terms of the 6.7% organic? What has to work in terms of the various verticals or assumptions that you've got in here?
There are a lot of variables here, but you can think about some of the trade uncertainty being cleared up and then a little bit of performance in automotive.
Okay. So those are the keys to trade in auto. Okay. Thanks very much.
Your next question comes from Nigel Coe with Wolfe Research. Your line is open.
Thanks. Good morning. I just wanted to come back to, I think, Patrick, your comments on investment spending. I think you said it was about $10,000,000 lighter than your plan in the Q1. And then I think you said 2 thirds of the $70,000,000 happens in the first half.
So just doing that math and trying to back into 2Q, is the headwind about $30,000,000 or so?
You mean from a year over year point of view in the second quarter?
Yes,
Yes. Probably a little less than that, not far off, but I'd say a little less than that. Yes.
Okay. So but directionally okay, got it. And then within your guidance maybe just
Nigel, the only thing I would add to that, some of that year over year increase is investments that we've released in fiscal 2018 and we see the call it the annualization impact of that. It's not all incremental in fiscal 2019. Okay. And
then just one more clear up and then I've got a broader question on PDC. But I think you were talking about 120 bps of impact from ASC 606 all in 1Q. Did that play through? And then maybe just talk about the PTC, how that's progressing so far? And how much sales impact do you have baked into your FY 2019 guide from the PTC resale?
Okay. I think Blake wants me to take 606 and he'll take PTC. Actually, the impact from 606 was as expected in the Q1. The EPS impact was 0.0 $0.07 negative. So as expected there and no material impact on sales, the beat the reasons for the beat on sales was not related to 606.
Okay.
Yes. And regarding PTC, it was good quarter. We had some interesting wins in the quarter. We've talked before about Ford at the Investor Day, where we're providing value actually in a power transmission facility. And then at a Asia Pacific region mining company.
But since then, a couple of additional ones in food and beverage, Lava Food, a Vietnamese company that specializes in processing and providing fresh fruits and vegetables, an Indian tire manufacturer where we had an order of over $1,000,000 that includes PTC as well as our MES offering, Doosan Bobcat in the EMEA region, they make loaders and excavators. You probably recognize the name. And they were looking at additional analytics and visibility of their operations. And then in China, another metals and mining account. And those are just a few of the examples.
I particularly like the diversity of where we're winning across geographies and industries. First, it says that the value that we're offering together is real. And second, it shows that our sales force is energized. They're out there talking about this, and it's a way to make us more important to customers. There's also discussions going on and a parallel path to converge our technology roadmaps and so creating that tighter alliance as time goes on.
Thanks. That's great color. And Blake, what do you have baked into your sales guide from PTC products?
Yes. So PTC falls in the FactoryTalk Innovation Suite, which is also a part of the bucket that we look at as information solutions and connected services. And so we continue to talk about double digit growth on top of the $300,000,000 base that we talked about last year. And with the contribution of PTC, we expect that to double over the next 4 years.
Okay. Thanks. That's great color. Thanks.
Thanks, Andrew. Your next question comes from Andrew Obin with Bank of America Merrill Lynch. Your line is open.
Good morning. This is Anna Kaminskaya on behalf of Andrew Obin. Maybe most of the questions have been asked already, but would you be able to provide any additional details on your announced acquisition, just how impactful it is to your P and L for the rest of the year?
Yes. Emulate 3 d won't have a material impact on the results in fiscal 2019. But strategically and for customers, it's really an exciting addition because this is software that works along with our core configuration tools to help customers simulate and emulate the operation of their system. So the simulation allows them to model the physical movement of their production system before they actually have to try it out with hard tooling on the line. And then the emulation capability allows them to look at the performance of the configuration tools, again, to make sure that it's working smoothly and with the kind of timing that's required.
We've worked with them in the past. We mentioned that they were part of our formal partner program, and now we're going to be able to achieve even tighter integration with them. So again, as with PTC, we had customers asking for us to get closer before we made this additional step. So we're excited about it. We think our customers are as well.
And then your numbers around how much you paid for it or any revenue contribution?
We're not disclosing that, Anna. And as Blake said, the impact on fiscal 2019 will be immaterial.
And then with some of the changes to accounting and I mean strong 1Q, any other moving parts as we think about 2Q outlook, 2Q EPS? Is it in line with historical seasonality? Anything you would like to call out besides the high investment year over year that we already talked about?
Not really, Anna. I think the only thing I would say that we would expect the year over year growth to be somewhat balanced year over year growth rate somewhat balanced first half versus second half of the year.
Great. Thank you very much.
Thank you.
Your next question comes from Josh Pokrzywinski with Morgan Stanley. Your line is open. Josh, your line is open.
This is Briony Goldring on for Josh Pokrzywinski. Good morning.
Good morning.
So looking at 2Q guidance with the move in investment, we come up with earnings down very slightly and EPS up a little. Is that the right way to think about it?
I'm not going to provide any additional color than I already did with respect to timing of spend and year over year growth rates, first half, second half. So I'm not going to provide more detail on the second quarter.
Okay. That's fine. Thank you.
Thank you.
Next question comes from Richard Eastman with Baird. Your line is open.
Yes. Good morning. Good morning, Rick. Could you just speak to there was $90,000,000 of tariff headwind kind of heading into the year. And I think the commentary was half price offset would be half price and half supply chain improvements.
And in that price commentary, I believe Ruckle took a second price hike, I think in November. Could you just speak to maybe the stickiness of that hike and also the price capture at the top line in the Q1?
Yes, Rick. So our price realization in the Q1 was about 1 point. And so we're on track to get close to 1.5 for the full year, which is what is in our guidance and our expectations. You're correct. So the $90,000,000 was the gross annual impact.
Half of that, we expect to offset with supply chain changes and negotiations with vendors. The other half offset with pricing. We had the annual price increase in August of each year, as we always do. We had an upcycle price increase in October, and then we had an upcycle price increase in December. And those last two price increases all related to tariffs.
We see we realized that the price increase that we were targeting associated with those last two price increases. And so that's why I said we realized about 1 point in the Q1. We expect a little bit more than that for the full year just given the timing of those last two price increases.
Okay, understood. And then just one question that probably relates to the A and S op margin. The incremental there was quite high. Now there wasn't a great deal of incremental sales growth. But at the end of the day, is that more mix around software sales?
Did they increase at a faster rate than Logix? Is there a mix in there? Or is that a price is that price that's more of the price captured in ANS? I'm curious how we delivered some of this margin there.
Yes. The way you can think about it there, Rick, is that our spend was light, as I mentioned earlier, and it was particularly light in that segment.
Okay.
From a mix point of view, within that segment, Logic did actually quite well. So there was not a big mix driver within that segment.
Okay. Because when you talk about and Blake, you had mentioned this information solutions and the connected services. My guess is the information solutions piece probably outgrew Connected Services. I don't know if that's easy enough to parse through. But again, that seems like that would have helped the software factory talk suite products sales within ANS.
Yes. I think on balance, the margin is between that bucket is at or slightly above the company average in over a period of time. Okay.
If I look at the go ahead.
Okay. Rick? Well, just again, I was just looking at the mix being more software friendly in ANS as the PTC agreement expands. Is that going to be noticeable?
I think it will be, but it's going to take a while because when we resell some of that software or we add some of our software on top of that, it's on a subscription basis, Rick. And so therefore, it will start out to be really small. And so obviously, we like to grow it as fast as possible. But it being subscription and not license sales, it's going to be slow and it's going to take some time before you'll see it have a mix effect.
I understand because of the deferred component. Okay, very good. Thank you.
Thanks, Rick.
Your next question comes from Andy Kaplowitz with Citi. Your line is open.
Good morning, guys. It's Vlad Disturkey on for Andy.
Good morning.
So, can you guys talk a
little bit more, I know you talked about Latin America, the strength in Latin America. So can you just give a little more color on really what's driving that strength? Any particular countries and more about how you're thinking about the sustainability of the LatAm strength in 2019?
Yes. A few comments in terms of the growth drivers in Latin America. Latin America for a long period of time has been a strong region for us. There's a lot of diversity in the region in industries that we serve well. One of the key starting points in Latin America is the backlog in mining.
And so we talked last year about the big Codelco Mining project. That's one example. We're starting to see some of that order come out in quarterly results. And so that's a strong contributor for us. We also see continued growth in oil and gas, particularly in Mexico.
And then finally, we've seen several quarters of good growth in Brazil as well. And so I think those would be 3 of the key contributors to the continued performance in Latin America.
Okay, that's helpful. And then just to circle back on the tariff impact for a moment. I know you talked about the pricing that you've put in. I think last quarter you said about 2 thirds of the supply chain adjustments were already in the execution phase. So can you talk about, are all of the supply chain adjustments and vendor negotiations sort of now underway or in execution?
Or do you still have more to do there to get to the net neutral on tariffs?
I think everything is being worked on. That doesn't mean that everything is buttoned up. But as I mentioned, we are on track and our teams have done tremendous work on making that happen, which is why we continue to expect that for this fiscal year, the net impact will be 0.
Okay, perfect. And then maybe one last one for me. I know you aren't disclosing financials on emulate 3 d, but can you just talk more broadly about what you're seeing in terms of valuation multiples in the pipeline? Have you seen any movement there? Have you seen any valuations start to come in at all with recent market volatility?
I think there's been, in general, across a broad portfolio of names out there, there would be some contraction based on the macro.
Your
next question comes from Nicole DeBlase with Deutsche Bank. Your line is open.
Yes, thanks. Good morning.
Good morning.
So a couple piggybacks on questions that have already been asked. First on China, I know you guys saw mid single digit growth for the quarter. If you could kind of frame out what you expect for the full year?
Yes. We see China growing mid single digits for the full year as well. And we talked before about life sciences, which is really a macro trend across the world. But the Chinese companies are particularly vigorously adopting some of the new value, some of the software again that sits on top of the basic control systems. We see growth in tire in China in the full year.
We see growth in oil and gas in China and then a little bit of growth in food and beverage as well.
Okay, understood. That's helpful. And then piggybacking on the question on process. So I know you guys went through kind of what drove the growth this quarter, what happened within oil and gas, but growth did decelerate. I think it was up about 10 organically in the 4th quarter.
It's now at 5. If you could just talk a little bit about the moving pieces
from 4Q to 1Q? Yes, I would look at the majority of that is quarterly variability. We're not seeing a meaningful slowdown in any one area of that versus another. And again, this is one component of what we're offering to those process applications, the other main piece being the motor control as well. So I wouldn't look at that as a trend at this point.
Okay, understood. Thanks. I'll pass it on.
Thank you.
Your next question comes from Joe Ritchie with Goldman Sachs. Your line is open.
Hi, good morning. This is Ashish Gupta on for Joe. Good morning. Yes. Hey, Patrick, so you mentioned that investment spend was $10,000,000 lighter than expected in the quarter.
Of the other two items that you mentioned on the 4Q call that was supposed to be headwinds like ASC 606 and the impact of pricing, Can you just comment on how those two items came in versus your expectations going in?
Yes. So as I believe I mentioned earlier on the call, the earnings impact of 606 was as we expected, also a few cents of negative impact. And then with respect to tariffs, in November, we mentioned that we expected a headwind in the Q1 associated with tariffs, and that is exactly what we saw in the Q1. So the net of price and cost was a small headwind in Q1, and we expect the net impact of tariffs to be 0 for the full year. So cost tariffs and 6.6 came in as expected basically in the Q1.
Understood. And just secondly, I think in the beginning, you guys commented that semis was a strong area in the quarter, which is just surprising given some of the commentary we'd heard from semis players and some of your competitors. So like what's different? Like are you taking share? And what's your outlook for semis for the rest of the year?
Thank you.
Yes. I think our comment about semi was specific to China where semi was up. From a global basis, semi was about flat for the Q1. We've seen several years of good growth in semi. We expect this year in our guidance was a slower growth in semi, about mid single digits, and the Q1 was about flat, but with some growth in China as Blake mentioned.
Great. Thank
you. Next question comes from John Walsh with Credit Suisse. Your line is open.
Hi, good morning.
Good morning. Good morning.
So, I guess maybe just one question here to piggyback off of some of the earlier price questions. If I just kind of go through your K and look at what price has done in the last couple of years per your commentary, looks like it was a little bit less than a point in 2017 and then about 50 basis points in 2018. And if I do the rough math here on what you're talking about comes from tariff versus organic price, it looks like we're going to tick up a little bit above that 50 basis points you probably realized in 2018. So wondering if this is all just rounding or if you're actually starting to see some real underlying price traction outside of kind of the tariff impacts where you're just pushing the price through the channel?
Yes. So I would say it's both. You're right. Last year, we realized about 0.5 points in price. We did mention, I believe, that we were targeting for somewhat higher price increase in fiscal 2019 given generally increasing input costs, leave alone the impact of tariffs.
So our we targeted a larger price increase given higher headwind from input costs. And on top of that, there is, of course, the tariffs and some of the price increases that we have implemented as a result of that. And so in total, we will realize more price this year. That's our expectation than last year. As I said, about 1.5.
This includes not only the price from the tariffs, but also, call it, our base price increase or base price realization will be a little bit higher than what it was last year. So it's both. We realized a little bit more price from our, call it, our annual price increase. And on top of that, there is the selected price increases related to the tariffs.
Yes. No, got you on that. I guess I was trying to get at maybe some value pricing as you move the portfolio more into your connected enterprise and what you're able to realize on that front kind of absent the general inflation and tariff, what kind of the value add pricing you were getting, if you were starting to see any kind of tick up in that relative to where you've been historically?
As we come out with new product software and capabilities, Obviously, we try to price it appropriately knowing that there is still some competition out there.
Got you. Great. Appreciate the color. Thank you.
Thank you. Thanks, Mark. Operator, we'll take one last question.
Your last question comes from Scott Graham with BMO. Your line is open.
Hi, good morning. Like I think others here, we've got a number of earnings this morning, so I've jumped off on the call. So forgive me if I have I'm double asking a question here. On the EMEA organic down 0.7 percent, would you be able to split for us Europe versus Middle East and Africa there and the driver of whatever happened in Europe?
Yes. I believe that the way you can think about it is mature markets in EMEA general no, emerging countries in EMEA generally performed better than the mature countries in that region.
So would
you say that the majority
were maybe down mid single digit?
Say again?
Would you say that the matures were down mid single digit or maybe low
There is a range there. The way I would say it is that some of the mature companies would be below the EMEA average and some of the emerging countries would be a little bit better. Obviously, mature countries still account for the majority of our business in that region.
Understood. Thank you. And on oil and gas, I know that you're a little bit more tilted toward the upstream. I was just wondering if what your customers were saying given North America. First half of the year kind of looks a little dicey where capital spending goes with some of these upstream guys.
What are you seeing in North America and elsewhere in your upstream business in oil in the next 6 to 9 months?
Yes. So we continue to see growth in oil and gas, mid single digits growth for the year. You're right, a little more than half of our business is upstream with the remainder split between midstream and downstream. We continue to see strength in the Permian. And one of the comments, because we're not as dependent on the big mega projects, regardless of the price of oil, people are going to be looking for productivity in their operations.
And that's really our sweet spot either with solutions or with individual products as people find ways to make even more efficient their production operations. And so we continue to see that as a source of growth for us, including the U. S.
Got it. Thank you.
Thank you. Okay. Thanks. Now I'll turn it back to Blake for a few final comments. Thanks
for everyone's questions. I just want to summarize. The Q1 was a great start to the year. We delivered strong operating and financial performance. We're executing on our key initiatives and our strategy is working.
Steve?
Okay. That concludes today's call. Thank you for joining us. You may disconnect.
And that concludes today's conference call. At this time, you may disconnect. Thank you.