Rockwell's 2Q Earnings Beat, Sales Miss

Zacks

Rockwell Automation, Inc. (ROK) reported second quarter fiscal 2013 adjusted earnings of $1.33 per share, up 11% from $1.20 per share earned in the prior-year quarter. The results beat the Zacks Consensus Estimate of $1.30.

Earnings exclude net effect of non-operating pension costs and their related tax effect of 9 cents per share in the reported quarter and 4 cents in the year ago quarter. Including this, earnings from continuing operations were $1.24 per share compared with the prior-year quarter’s earnings of $1.16.

Operational Update

Total revenues were $1.533 billion in the reported quarter, down 2% year over year. The results missed the Zacks Consensus Estimate of $1.594 billion.

Cost of sales decreased 4% year over year to $906 million in the quarter. Gross profit remained flat at $616 million compared with the year-ago quarter. Gross margin expanded 90 basis points (bps) year over year to 40.5% in the quarter.

Selling, general and administrative expenses declined 1% to $377 million from the prior-year quarter. Segment operating income was $285 million in the quarter compared with $276 million in the second quarter of 2012. Operating margin expanded 100 basis points year over year to 18.7%.

Segment Results

Architecture & Software: Net sales for the segment went down 4% to $639 million in the quarter. Organic sales decreased 3%. Segment operating earnings in the reported quarter were $169.9 million compared with $170.6 million in the year-ago quarter. Segment operating margin increased to 26.6% from 25.7% a year ago.

Control Products & Solutions: Net sales decreased 1% to $883.6 million in the quarter. Segment operating earnings in the reported quarter inched up 9% to $115.3 million. Segment operating margin in the quarter expanded 120 (bps) year over year to 13%.

Financials

Rockwell Automation had cash and cash equivalents of $967.1 million as of Mar 31, 2013, compared with $903.9 million as of Sep 30, 2012. Total debt was $1.14 billion as of Mar 31, 2013 compared with $1.06 billion as of Sep 30, 2012.

The debt-to-capitalization ratio was 36.1% as of Mar 31, 2013, flat compared with Sep 30, 2012. In the second quarter of fiscal 2013, the company generated a cash flow from operating activities of $370 million compared with $64.5 million in the prior-year quarter. Return on invested capital was 29.8% as of Mar 31, 2013 compared with 30.5% as of Mar 31, 2012.

Share Repurchase

During the reported quarter, Rockwell Automation repurchased 1.4 million shares for $125.9 million. As of Mar 31, 2013, the company had $723 million worth of shares remaining under the $1 billion share repurchase authorization.

Guidance

Rockwell Automation lowered its sales guidance to the range of $6.25 to $6.45 billion for fiscal 2013 from the previous range of $6.35 to $6.65 billion. Outlook for earnings per share was also revised to a new band of $5.40 to $5.70 per share from the previous range of $5.35 to $5.75 per share.

Our View

Rockwell Automation will benefit from its expansion in the emerging markets, investment in Logix and its recent acquisition of China-based medium voltage drives business. However, uncertainty in the global economic scenario, which can lead to cautious capital-spending, further deterioration in the Chinese economy and margin headwinds in the form of increased growth spending remain concerns. Rockwell currently retains a short-term Zacks Rank #3 (Hold).

Based in Milwaukee, Wisconsin, Rockwell Automation is an original equipment manufacturer (:OEM) of industrial automation equipment, application specific integrated software and consulting design services. Rockwell’s peers in the same industry are HollySys Automation Technologies, Ltd. (HOLI), iRobot Corporation (IRBT) and ECOtality, Inc. (ECTY).
 

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