Rockwell Automation (ROK) Beats on Q2 Earnings, Hikes '21 View

Rockwell Automation Inc. ROK reported adjusted earnings of $2.41 in second-quarter fiscal 2021 (ended Mar 31, 2021), beating the Zacks Consensus Estimate of $2.15. The bottom line, however, declined 2.4% year over year primarily due to the reinstatement of incentive compensation and a higher adjusted effective tax rate.

Including one-time items, the company’s earnings came in at $3.54 per share, reflecting a significant improvement from the year-ago quarter’s $1.13.

Total revenues were $1,776 million, up 5.6% from the prior-year quarter. The top line beat the Zacks Consensus Estimate of $1,703 million. Organic sales in the quarter were up 1.3%, currency translation had a positive impact of 2.4%. Further, acquisitions contributed 1.9% to sales.

Operational Update

Cost of sales increased 2.6% year over year to $1,009 million. Gross profit climbed 9.7% year over year to $767 million. Selling, general and administrative expenses flared up 19.6% year over year to $421 million.

Consolidated segment operating income totaled $390.1 million, up 5% from the prior-year quarter. Segment operating margin was 22% in the fiscal second quarter, flat year over year.

Rockwell Automation, Inc. Price, Consensus and EPS Surprise

Rockwell Automation, Inc. price-consensus-eps-surprise-chart | Rockwell Automation, Inc. Quote

Segment Results

Intelligent Devices: Net sales amounted to $850 million in the fiscal second quarter, reflecting year-over-year growth of 8%. Segment operating earnings totaled $202 million compared with the prior-year quarter’s $181 million. Segment operating margin expanded to 23.8% in the quarter compared with the year-ago quarter’s 23%, on higher sales and lower spending, partly offset by the reinstatement of incentive compensation.

Software & Control: Net sales increased 12% year over year to $502 million in the reported quarter. Segment operating earnings jumped 9.5% year over year to $149.8 million. Segment operating margin was 29.8% compared with the 30.5% recorded in the year-earlier quarter.

Lifecycle Services: Net sales for the segment amounted to $424 million in the reported quarter, reflecting a year-over-year decline of 5.4%. Segment operating earnings totaled $38 million compared with the prior-year quarter’s $54 million. Segment operating margin was 9% in the quarter compared with the year-earlier quarter’s 12.1%.

Financials

As of end of second-quarter fiscal 2021, cash and cash equivalents were around $642 million compared with $705 million as of the end of fiscal 2020. As of Mar 31, 2021, total debt was around $2 billion, relatively flat as of Sep 30, 2020.

Cash flow from operations during second-quarter fiscal 2021 was $595.4 million compared with the prior-year quarter’s $448.5 million. Return on invested capital was 44.6% as of Mar 31, 2021, compared with 25.9% as of Mar 31, 2020.

During the reported quarter, Rockwell Automation repurchased 0.4 million shares for $92 million. As of the end of second-quarter fiscal 2021, $674 million was available under the existing share-repurchase authorization.

Fiscal 2021 Guidance Raised

The company witnessed double-digit increase in orders on a sequential and year-over-year basis, driven by growth in core automation platforms, Information Solutions & Connected Services (IS/CS), and recent buyouts. Backed by solid order strength, Rockwell Automation has raised its guidance for fiscal 2021 to the band of $8.95-$9.35 from the previous estimate of $8.70-$9.10. Organic sales growth is expected between 5.5% and 8.5%, up from the prior expectation of 4.5% to 7.5%. Reported sales growth is anticipated in the range of 9% to 12%, up from the previous band of 8.5% to 11.5%. Inorganic sales growth is projected to be around 1.5% for the fiscal year.

Share Price Performance

Over the past year, Rockwell Automation’s shares have appreciated 36.4% compared with the industry’s growth of 38.4%.

Zacks Rank & Stocks to Consider

Rockwell Automation currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the Industrial Products sector include Dover Corporation DOV, Caterpillar Inc. CAT and Pentair plc PNR, each carrying a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dover has a projected earnings growth rate of 21.8% for 2021. Over the past year, the company’s shares have gained 54.3%.

Caterpillar has an estimated earnings growth rate of 25.7% for the ongoing year. The company’s shares have rallied 99.7% in the past year.

Pentair has an expected earnings growth rate of 11.6% for 2021. The stock has surged 86% in a year’s time.

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