Rockwell Automation (ROK) Down 4.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Rockwell Automation (ROK). Shares have lost about 4.4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Rockwell Automation due for a breakout? 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 Earnings Meet Estimates in Q1

Rockwell Automation reported adjusted earnings of $2.11 in first-quarter fiscal 2020 (ended Dec 31, 2019), which met the Zacks Consensus Estimate. However, the bottom line declined 5% from the prior-year quarter figure of $2.21. Lower organic sales, higher investment spending, and unfavorable mix, partially offset by a lower share count and lower tax rate, led to the overall decline in earnings.

Including one-time items, the company’s earnings came in at $2.66 per share compared with 66 cents reported in the year-ago quarter.

Total revenues came in at $1,684.5 million, up 2.6% compared with the prior-year quarter. Moreover, the top line figure outpaced the Zacks Consensus Estimate of $1,625 million. Organic sales in the quarter were down 1%, while foreign-currency translations had a negative impact of 0.9%. However, acquisitions contributed 4.5% to sales.

Operational Update

Cost of sales rose 9% year over year to $982 million. Gross profit decreased 5% to $703 million from the year-ago quarter’s $739 million. Selling, general and administrative expenses rose 4% year over year to $403 million.

Consolidated segment operating income totaled $339 million, down 10% from the prior-year quarter’s figure of $375 million. Segment operating margin was 20.1% in the fiscal first quarter compared with the prior-year quarter’s 22.8%.

Segment Results

Architecture & Software: Net sales declined to $752 million in the fiscal first quarter from the $753 million in the prior-year quarter. While organic sales were up 0.7%, currency translation had a negative impact of 1%. However, acquisitions contributed 0.1%. Segment operating earnings came in at $224 million compared with the $237 million reported in the prior-year quarter. Segment operating margin contracted 29.8% in the quarter compared with 31.5% in the comparable period last year, thanks to higher investment spending.

Control Products & Solutions: Net sales increased 5% year over year to $933 million in the reported quarter. Organic sales declined 2.5%, while currency translation reduced sales by 0.8%. Inorganic investments increased sales by 8.2%. Segment operating earnings plunged around 17% to $1115 million from the year-ago quarter. Segment operating margin was 12.4% compared with the prior-year quarter’s 15.5% on account of Sensia one-time items, unfavorable mix, and lower organic sales.

Financials

As of Dec 31, 2019, cash and cash equivalents totaled $926 million, down from $1,018 million as of Sep 30, 2019. As of Dec 31, 2019, total debt was $2,278 million, up from $2,257 million as of Sep 30, 2019.

Cash flow from operations in first-quarter fiscal 2020 was $231 million compared with the $212 million generated in the prior-year quarter. Return on invested capital was 33% as of Dec 31, 2019, compared with 39% as of Dec 31, 2018.

During first-quarter fiscal 2020, Rockwell Automation repurchased 0.5 million shares for $100 million. As of the quarter end, $1 billion was available under the existing share-repurchase authorization.

Fiscal 2020 Guidance

The company anticipates fiscal 2020 adjusted earnings per share in the band of $8.70-$9.10. The mid-point of the guided range suggests year-over-year growth of 3%. Organic sales growth is expected in the range of negative 1.5% to positive 1.5%. Inorganic sales growth is expected at around 4% for the year while currency translation impact is expected to be a negative 0.5%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Rockwell Automation has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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 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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