Research & Analysis: Rockwell Automation (NYSE: ROK)

Nearshoring industrials; Tariff mitigation

This week we’ll be sticking with the industrial automation theme with Rockwell Automation (NYSE: ROK). As suggested in previous coverage of Teradyne and Zebra Technologies, the industry experienced a sharp downturn throughout 2024 following a period of significant buying as well as the employment squeeze during the C19 lockdowns.

The industry appears to be positioned for a strong upswing following the inventory destocking and relatively dismal manufacturing cycle experienced in 2024. Accordingly, the manufacturing PMI has been relatively positive since the beginning of 2025, potentially suggesting an improved market for industrial automation companies to operate in.

From an investment perspective, the challenging market has led to relatively lackluster stock performance across ROK and TER since the beginning of 2024. Shares have more recently been under pressure following the announced tariffs across Canada, Mexico, and China, major regions for both sales and input materials.

Looking at Rockwell, shares have faced significant selling pressures with a modest outlook for eFY25. As a result of the challenging market environment, management is taking the appropriate action to rightsize operations and reroute its supply chains in order to minimize the impact from tariffs.

Nonetheless, the cost of finished goods associated with Canada, Mexico, and China were less than 10% of the firm’s US-based revenue in FY24. Total imported materials from Mexico for the fiscal year was approximately $350mm while imports from China and Canada were each approximately $100mm. Quantifying this, imports from these three countries accounted for 11% of the total cost of goods sold in FY24. Given the timing of purchases, management does not anticipate tariffs to materially impact Rockwell’s FY25 operations.

As a result of the imposed tariffs on Canada and Mexico, management is taking the initiative to migrate production in Mexico to the US. Management enacted pricing increases in early February to manage margins as a result.

Nonetheless, there appears to be major catalysts coming into play over the next few years as more and more investments are made in US manufacturing. The most recent major announcement was Hyundai planned $21b investment in US manufacturing between 2025-2028 with the intent of producing 1.2mm units per year. The breakdown is as follows:

• $9b to expand US auto production.

• $6b to enhance parts, logistics, and steel business.

• $6b to expand future industries, including investments in energy infrastructure for EV charging.

There has been a swarm of announced plans to migrate manufacturing to the US beyond the automotive industry.

• Apple is planning to invest $500b over the next 4 years with a major chunk going into an AI server manufacturing facility in Houston, Texas.

• Johnson & Johnson is investing $55b over the next four years to construct 4 new manufacturing facilities.

• Taiwan Semiconductor expanded its US investment to $165b for 3 new fabrication plants, 2 advanced packaging facilities, and a major R&D center

The list goes on. Though it’s early to suggest that the tariff strategy is a win, the signs are beginning to show that this may turn out to be one of the biggest reinvestments in US manufacturing ever.

Rockwell reports under three segments:

• Intelligent Devices

• Software & Control

• Lifecycle Services

Intelligent devices cover the hardware component for industrial machinery, including drives, motion, advanced material handling, and other industrial components.

Software & Control, as the name would suggest, covers the control and visualization software and hardware, digital twin, simulation, and other software-related features.

Lifecycle Services is Rockwell’s digital consulting component which includes engineered-to-order solutions as well as other services like cybersecurity, safety, remote monitoring, etc.

One of Rockwell’s strengths in the market is its end-to-end solutions for manufacturing. Rockwell provides various devices on the plant floor as well as data solutions and analytics.