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Rockwell Automation (ROK) Up 3.8% Since Last Earnings Report: Can It Continue?

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Zacks Equity Research
·4 min read
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A month has gone by since the last earnings report for Rockwell Automation (ROK). Shares have added about 3.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Rockwell Automation due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Rockwell Automation Q4 Earnings Beat Estimates

Rockwell Automation reported adjusted earnings of $1.87 in fourth-quarter fiscal 2020, beating the Zacks Consensus Estimate of $1.77. However, the bottom line declined 7% year over year, primarily due to lower sales.

Including one-time items, the company’s earnings was $2.25 per share, reflecting a significant improvement from the 7 cents in the year-ago quarter.

Total revenues were $1,570 million, down 9.3% from the prior-year quarter. The top line also missed the Zacks Consensus Estimate of $1,573 million. While organic sales in the quarter were down 12.1%, currency translation had a negative impact of 0.3 percentage points. However, acquisitions contributed 3.1 percentage points.

Operational Update

Cost of sales decreased 7.6% year over year to $9318 million. Gross profit declined 12% year over year to $639 million. Selling, general and administrative expenses slumped 12% year over year to $354 million.
Consolidated segment operating income totaled $318 million, down 9% from the prior-year quarter. Segment operating margin was 20.2% in the fiscal fourth quarter, flat compared with the prior-year quarter.

Segment Results

Architecture & Software: Net sales amounted to $703 million in the fiscal fourth quarter, reflecting year-over-year decline of 10%. Segment operating earnings totaled $191 million compared with the $205 million reported in the prior-year quarter. Segment operating margin contracted to 27.2% in the quarter compared with the year-ago quarter’s 26.2%.

Control Products & Solutions: Net sales declined 9% year over year to $867 million in the reported quarter. Segment operating earnings decreased 12% year over year to $127 million. Segment operating margin was 14.6%, compared with 15.2% in the year-earlier quarter.

Financials

As of fiscal 2020-end, cash and cash equivalents were around $705 million, down from $1,018.4 million as of fiscal 2019 end. As of Sep 30, 2020, total debt was around $2 billion, down from $2.3 billion as of Sep 30, 2019.

Cash flow from operations for fiscal 2020 was $1.12 billion compared with $1.18 billion generated in the prior fiscal. Return on invested capital was 35.7% as of Sep 30, 2020, compared with 27% as of Sep 30, 2019.

During fiscal 2020, Rockwell Automation repurchased 1.4 million shares for $254.7 million. As of the end of the fiscal, $853.7 million was available under the existing share-repurchase authorization.

Fiscal 2020 Performance

For fiscal 2020, Rockwell Automation’s adjusted earnings was $7.68 that surpassed the Zacks Consensus Estimate of $7.57 but was 11% lower than the prior fiscal. Including one-time items, the company’s earnings came in at $8.77 per share compared with $5.83 in fiscal 2019. Total revenues were down 5.5% year over year to $6.33 billion, which missed the Zacks Consensus Estimate of $6.34 billion.

Fiscal 2021 Guidance

The company anticipates fiscal 2021 adjusted earnings per share in the band of $8.45-$8.85. Organic sales growth is expected between 3.5% to 6.5%. Reported sales growth is anticipated in the range of 6% to 9%. Inorganic sales growth is projected to be 1-1.5% for the fiscal year.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 15.76% due to these changes.

VGM Scores

Currently, Rockwell Automation has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Rockwell Automation has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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