Best-in-class Robotics & Automation companies around the world continued to deliver superior revenue and earnings growth in 2Q23. However, after four consecutive quarters of positive earnings surprises, strong demand, and record high backlogs, the tone has changed as several bellwether companies warned of slowing orders and reduced full-year outlooks.
Slowing orders in factory automation were most apparent at:
- Rockwell Automation, the US leader in factory automation control systems, which had an exceptionally strong 1Q23, trimmed its year-end backlog and lowered the high end of organic growth guidance. While management remains upbeat around the large number of new manufacturing facilities launching in the US, Rockwell saw increased cancellations in China and with e-commerce customers and warned of slowing orders from machine builders.
- Fanuc, the world’s leader in industrial robotics, reported a surprising 35% decline in operating profit and lowered full-year guidance by more than 30% below consensus. Orders fell 24% YoY as customer inventories normalized. Fanuc said that with supply chains stabilized, inventory adjustments across the industry will likely continue through the remainder of the year.
- Siemens, the European industrial automation powerhouse, lowered its 2023 sales outlook for Digital Industries after a -35% YoY slump in 2Q orders, expecting intensified destocking trends to continue for the next few quarters.
- ABB, the European leader in factory robotics, also reported worse than expected declines in orders Robotics and Discrete Automation (-23% YoY)
While industrial automation looks set to slow further in the next couple of quarters, overall fundamentals for the ROBO index remain strong.
87% of the 79 ROBO Global Robotics & Automation Index members have now reported 2Q23 earnings, and the median revenue growth stands at 9.5%, significantly above the 0.6% rate for the S&P500, according to Factset. Meanwhile, median EPS growth accelerated to 12.1% YoY, up from 5.3% YoY in the prior quarter. This compares to a -5.2% EPS decline for the S&P500, the largest earnings decline since 3Q20, according to Factset.
These results were somewhat better than expected, with a median EPS surprise of +3%, but not as positive as in prior quarters. In fact, only 54% of index members reported EPS beats in 2Q, compared with 70% in 1Q23 and 61% in 4Q22.
More than half of the ROBO index members reported double-digit revenue growth, led by business process automation (ServiceNow, PTC) as well as logistics and warehouse automation, with Symbotic, Kardex, Cargotec, Manhattan Associates, and Toyota Industries all reporting more than 23% growth. Symbotic announced a flurry of new contracts and a new JV with Softbank to create an automated warehouse services company, which it expects to generate over $500m in annual recurring software, parts, and services revenue by 2030.
The Integration and Sensing subsectors also showed healthy double-digit revenue growth. Meanwhile, revenue declines were concentrated in 3D Printing and semiconductors, where the downcycle started in 2022 continued to play out with Ambarella, Qualcomm, Teradyne, and Fuji reporting declines of more than 15%.
As of 18 August 2023, the ROBO index was up 13.6% YTD and is trading on an aggregate forward PE of 25x, compared with the 24x average during the nearly 10 years since inception, and a high of 36x in February 2021.
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