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Rockwell Automation Misses Earnings Ests, Narrows Outlook

Zacks Equity Research

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.


Rockwell Automation, Inc - Earnings Surprise | FindTheBest


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.


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.


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
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