Rockwell Automation Misses Earnings Ests, Narrows Outlook

Zacks

Rockwell Automation, Inc. (ROK) reported third-quarter fiscal 2014 (ended Jun 30, 2014) adjusted earnings of $1.49 per share, down 3.2% from $1.54 earned in the prior-year quarter. Results fell short of the Zacks Consensus Estimate of $1.56. Adjusted earnings in the third quarter were negatively impacted by 11 cents due to a higher tax rate, owing primarily to the year-over-year decrease in tax benefits recognized in the prior year over year quarter.

The company’s reported earnings came in at $1.43 per share, a decline of 1.4% from $1.45 reported in the year ago quarter.

Total revenue was $1,649.5 million in the quarter, up 1.6% year over year. Revenues also fell short of the Zacks Consensus Estimate of $1,685 million. Organic sales grew 2% year over year. The company witnessed strong growth in Architecture & Software segment while sales declined slightly at its Control Products & Solutions division.

 

 

Operational Update

Cost of sales increased around 0.3% year over year to $968 million. Gross profit rose 4.4% to $681.5 million from $652.9 million in the year-ago quarter. Gross margin expanded 110 basis points (bps) year over year to 41.3%.

Selling, general and administrative expenses went up 2.8% from the prior-year quarter to $394.4 million. Consolidated segment operating income was $326.1 million, up 2.6% from $317.8 million in the third quarter of 2013. The operating margin expanded 20 bps year over year to 19.8% on the back of higher sales.

Segment Results

Architecture & Software: Net sales increased 7% year over year to $715.2 million in the third quarter. Segment operating earnings were $204.8 million, as against $188.6 million in the year-ago quarter. Segment operating margin increased to 28.6% from 28.1% a year ago.

Control Products & Solutions: Net sales declined 2% year over year to around $934.3 million. Segment operating earnings decreased 6.5% to $121.3 million from $129.2 million in the year-ago quarter. Segment operating margin contracted 60 bps year over year to 13% due to lower sales.

Financials

As of Jun 30, 2014, cash and cash equivalents amounted to $1175 million versus $1024.7 million as of Jun 30, 2013. As of Jun 30, 2014, long-term debt was $905.4 million, almost flat compared $905.1 million as of Jun 30, 2013.

Cash flow from operations was $301.1 million during second-quarter 2014, as against $293.9 million in the year-ago comparable period. Return on invested capital was 29.6% as of Jun 301, 2014, compared with 31% as of Jun 30, 2013.

Share Repurchase

During the reported quarter, Rockwell Automation repurchased 1 million shares for $122.4 million. As of Jun 30, 2014, the company had $191.4 million worth of shares remaining under the $1 billion share repurchase authorization.

Guidance

Rockwell Automation trimmed its organic revenue growth rate and now expects it to be in the range of 4% to 6% from its previous range of 3.5%–6.5%. The company also reduced its outlook for adjusted earnings per share which is now expected to be in the range of $6.10 to $6.25 from its earlier expectation of $6.00 to $6.35. However the mid point of both the ranges remain the same as before.

The company expects full-year adjusted effective tax rate for fiscal 2014 to be about 27.5%.
 
Our View

Rockwell Automation will benefit from expansion in the emerging markets and strategic acquisitions. Additionally, a strong balance sheet position and free cash flow, along with dividends and share repurchases are expected to generate long-term shareholder value. Even though the European economy is gradually strengthening, macroeconomic conditions might continue to be a headwind for Rockwell Automation in fiscal 2014.

Milwaukee, WI-based Rockwell Automation is a leading global provider of industrial automation equipment, application-specific integrated software and consulting design services. It also offers industrial automation power, control and information solutions.

Currently, Rockwell carries a Zacks Rank #2 (Buy). Other players in the industrial products industry, which look attractive at current levels include HollySys Automation Technologies Ltd. (HOLI), iRobot Corporation (IRBT), and Graco Inc. (GGG). While HollySys Automation holds a Zacks Rank #1 (Strong Buy), iRobot and Graco hold the same rank as Rockwell Automation.

Read the Full Research Report on ROK
Read the Full Research Report on GGG
Read the Full Research Report on HOLI
Read the Full Research Report on IRBT


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