Rockwell Automation (ROK) Up 11.3% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Rockwell Automation (ROK). Shares have added about 11.3% 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 Tops Q2 Earnings & Sales Estimates, Trims View

Rockwell Automation reported adjusted earnings of $2.43 in second-quarter fiscal 2020 (ended Mar 31, 2020), beating the Zacks Consensus Estimate of 1.83. The bottom line increased 19% from the prior-year quarter figure of $2.04, primarily on lower incentive compensation expense.

Including one-time items, the company’s earnings came in at $1.13 per share compared with the $2.88 reported in the year-ago quarter.

Total revenues came in at $1,681.3 million, up 1.5% from the prior-year quarter. Moreover, the top-line figure outpaced the Zacks Consensus Estimate of $1,604 million. Organic sales in the quarter were down 0.2%, while foreign-currency translations had a negative impact of 1.5%. However, acquisitions contributed 3.2% to the increase in sales.

Operational Update

Cost of sales increased 3.6% year over year to $983 million. Gross profit edged down 1.3% to around $699 million from the year-ago quarter’s $708 million. Selling, general and administrative expenses declined 8.6% year over year to $352 million.

Consolidated segment operating income totaled $372 million, up 5% from the prior-year quarter figure of $354 million. Segment operating margin was 22.1% in the fiscal second quarter compared with the prior-year quarter’s 21.3%.

Segment Results

Architecture & Software: Net sales increased to $757 million in the fiscal second quarter from the prior-year quarter’s $739.7 million. While organic sales were up 4%, currency translation had a negative impact of 1.7%. However, acquisitions contributed 0.1%. Segment operating earnings came in at $233 million compared with the $210 million reported in the prior-year quarter. Segment operating margin expanded 30.7% in the quarter compared with the year-ago quarter’s 28.4%.

Control Products & Solutions: Net sales inched up 0.7% year over year to $924 million in the reported quarter. Organic sales declined 3.6%, while currency translation reduced sales by 1.5%. Inorganic investments increased sales by 5.8%. Segment operating earnings declined 3.4% to $139 million from the year-ago quarter. Segment operating margin was 15% compared with the prior-year quarter’s 15.7%.

Financials

As of Mar 31, 2020, cash and cash equivalents totaled $642 million, down from $1,018 million as of Sep 30, 2019. As of Mar 31, 2020, total debt was $1,970 million, up from $1,956 million as of Sep 30, 2019.

Cash flow from operations in the fiscal second quarter was $217.4 million compared with the $143.8 million generated in the prior-year quarter. Return on invested capital was 25.9% as of Mar 31, 2020, compared with 39.6% as of Mar 31, 2019.

 During the fiscal second quarter, Rockwell repurchased 0.6 million shares for $106.2 million. As of the quarter end, $902.2 million was available under the existing share-repurchase authorization.

Fiscal 2020 Guidance

The company anticipates fiscal 2020 adjusted earnings per share in the band of $6.90-$7.70. Organic sales growth is expected in the range of negative 9.5% to negative 6.5%. Reported sales growth is expected in between a negative 6.5% and negative 3%. Inorganic sales growth is expected at around 4-4.5% for the year, while currency translation impact is expected to be a negative 1%.

The unfavorable impact of the coronavirus pandemic on the company’s global business operations, supply chains and financials are difficult to predict at the moment. Moreover, Rockwell intends to close the previously-announced acquisitions of ASEM, S.p.A. and Kalypso, LP within the next few weeks.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -32.28% due to these changes.

VGM Scores

At this time, Rockwell Automation has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Rockwell Automation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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