We reiterate our Neutral recommendation on
Rockwell Automation Inc.
). The company missed both the earnings and revenue estimates in
the second quarter of fiscal 2012.
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Rockwell Automation's earnings of $1.16 a share improved 2% from
the prior year quarter's earnings of $1.14, but fell short of the
Zacks Consensus Estimate by 11 cents. Total revenue grew 7% year
over year to $1.56 billion, missing the Zacks Consensus Estimate of
Rockwell Automation has recently hiked the quarterly dividend by
11% to 47 cents per share, adding value to the shareholders. Its
commitment towards increasing shareholders' return reflects its
free cash flow generating capability and a strong balance sheet.
Further, the company's Board has approved the addition of $1
billion to its share repurchase program. This is in addition to the
previous buy-back authorization of $1 billion, of which the company
had $51 million remaining as of June 7, 2012.
During the second quarter, Rockwell repurchased 0.5 million shares
for $40.6 million. The company expects to repurchase nearly 3
million shares for the balance of the year. A lower share count
would turn out to be a tailwind for earnings for the forthcoming
Rockwell Automation is experiencing strong growth in the Process
business which grew 20% year over year in the second quarter. The
segment is benefiting from a strong execution in Logix.
The company introduced two new Logix-mid range controller platforms
that will help in improving scalability and Ethernet connection.
Moreover, it has plans to invest in Logix and expand the served
market. Logix sales are expected to grow more than $1 billion in
However, macroeconomic conditions might place the company in a
difficult situation in fiscal 2012. Moderating global economic
growth and uncertainty in the global economic scenario can lead to
cautious capital spending in fiscal 2012, limiting Rockwell's
near-term revenue visibility.
The company has narrowed its sales guidance to the range of
$6.25-$6.45 million from the previous guidance of $6.2-$6.5
million. Based on the projected sales, the company has narrowed the
earnings per share target to $5.10-$5.40 from the previous estimate
Further, currency will pose a problem for the balance of the year.
Currency translation is expected to reduce sales by 2 percentage
points in fiscal 2012.
Rockwell Automation faces competition from
Emerson Electric Co.
). The stock retains a short-term Zacks #4 Rank (Sell).