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Rockwell Automation (ROK) Up 2.6% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Rockwell Automation (ROK). Shares have added about 2.6% 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 drivers.

Rockwell Automation Q4 Earnings & Sales Beat Estimates

Rockwell Automation delivered adjusted earnings of $2.01 in fourth-quarter fiscal 2019 (ended Sep 30, 2019), surpassing the Zacks Consensus Estimate of $1.92. Earnings, however, declined 4% from the prior-year quarter figure of $2.10.

Including one-time items, the company recorded earnings of 7 cents per share compared with the $2.80 reported in the year-ago quarter. This downside primarily resulted from the PTC adjustments.

Total revenues came in at $1,730.2 million compared with the prior-year quarter’s $1,729.5 million. Also, the top-line figure outpaced the Zacks Consensus Estimate of $1,657 million. Growth in organic and acquisition sales in the quarter was 1.4% and 0.1%, respectively, while foreign-currency translations had a negative impact of 1.5%. Continued strength in oil and gas, mining, and life sciences, as well as better performance in automotive and food and beverage drove organic sales growth in the reported quarter.

Operational Update

Cost of sales rose 1.4% year over year to $1,007.3 million. Gross profit decreased 1.8% to $723 million from the year-ago quarter’s $736 million. Selling, general and administrative expenses declined 2.4% year over year to $405.1 million.

Consolidated segment operating income totaled $349 million, down 2.8% from the prior-year quarter’s figure of $358.9 million. Segment operating margin was 20.2% in the fiscal fourth quarter compared with the year-earlier quarter’s 20.8%.

Segment Results

Architecture & Software: Net sales increased to $781.2 million in the fiscal fourth quarter from the $774.4 million recorded in the prior-year quarter. While organic sales increased 2.3%, currency translation had a negative impact of 1.5%. However, acquisition contributed 0.1%. Segment operating earnings came in at $205 million compared with the $217.9 million reported in the prior-year quarter. Segment operating margin contracted to 26.2% in the quarter compared with 28.1% recorded in the comparable period last year.

Control Products & Solutions: Net sales edged down 0.6% year over year to $949 million in the reported quarter. Organic sales inched up 0.7%, while currency translation reduced sales by 1.3%. Segment operating earnings improved 2.1% to $144 million from the $141 million witnessed in the year-ago quarter. Segment operating margin expanded to 15.2% compared with the prior-year quarter’s 14.8%.

Financials

As of Sep 30, 2019, cash and cash equivalents totaled $1,018 million, up from $619 million as of Sep 30, 2018. As of Sep 30, 2019, total debt was $2,257 million, up from $1,776 million as of Sep 30, 2018.

Cash flow from operations in fiscal 2019 was $1,182 million, lower than the $1,300 million generated in fiscal 2018. Return on invested capital was 25% as of Sep 30, 2019, compared with 48% as of Sep 30, 2018.

During fiscal 2019, Rockwell Automation repurchased 6.1 million shares for $1 billion. As of the fiscal 2019 end, $1.1 billion was available under the existing share-repurchase authorization.

Fiscal 2019 Performance

Rockwell Automation reported adjusted earnings per share of $8.67 in fiscal 2019, up 7% from the $8.10 per share recorded in the prior fiscal year. The reported figure also surpassed the Zacks Consensus Estimate of $8.60. Including one-time items, the bottom line came in at $5.83 per share compared with the $4.21 recorded in fiscal 2018.

Revenues inched up 0.4% year over year to $6.69 billion from $6.67 billion generated in fiscal 2018. Also, the top-line figure beat the Zacks Consensus Estimate of $6.62 billion.

Fiscal 2020 Guidance

Despite geopolitical uncertainties, Rockwell Automation has been benefiting from its differentiated portfolio. The company now anticipates fiscal 2020 earnings per share in the band of $8.70-$9.10. Organic sales growth is expected in the range of negative 1.5% to positive 1.5%.

The company anticipates another year of double-digit growth in the Information Solutions and Connected Services segments. It is also poised to benefit from the Sensia and Schlumberger joint venture. This apart, Rockwell Automation is focused on cost savings and restructuring actions in order to reinvest in solid growth opportunities.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 6.15% due to these changes.

VGM Scores

Currently, Rockwell Automation has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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