ROK

Rockwell Automation (ROK) Down 7.2% Since Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Rockwell Automation, Inc.ROK . Shares have lost about 7.2% in the past month, underperforming the market.

Will the recent negative trend continue leading up to its next earnings release, or is ROK 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 Tops Q1 Earnings, Revises Outlook

Rockwell Automation reported adjusted earnings per share of $1.96 in first-quarter fiscal 2018 (ended Dec 31, 2017), up 12% from $1.75 recorded in the prior-year quarter. The year-over-year performance was driven by elevated sales, partially offset by higher investment spending. Earnings also surpassed the Zacks Consensus Estimate of $1.74.

Including one-time items, the company recorded a loss of $1.84 per share, compared to earnings of $1.65 per share reported in the year-ago quarter.

Total revenues came in at $1.59 billion in the quarter, up 6.5% year over year. Revenues, however, missed the Zacks Consensus Estimate of $1.60 billion. Organic sales rose 5.3%. Foreign currency translations boosted sales by 2.5%, while divestitures in the prior year reduced sales by 1.3%.

Operational Update

Cost of sales increased 4.9% year over year to $889.5 million. Gross profit inched up 0.6% to $697 million from $642 million reported in the year-ago quarter. Selling, general and administrative expenses flared up 5.2 % to $389.3 million.

Consolidated segment operating income was $355.5 million, up 12.3% from $316.6 million recorded in the prior-year quarter. Segment operating margin was 22.4% in the reported quarter, a 120-basis-point expansion from the year-earlier quarter due to higher sales, partially offset by higher investment spending.

Segment Results

Architecture & Software: Net sales rose 7.3% year over year to $746.9 million in the fiscal first quarter. Organic sales were up 4.6% and currency translation bolstered sales by 2.7%. Segment operating earnings were $224.6 million compared with $208.6 million recorded in the prior year. Segment operating margin was 30.1% compared with 30.0% witnessed in the year-ago quarter.

Control Products & Solutions: Net sales climbed 5.8% to $839.7 million in the reported quarter. Organic sales increased 5.9%, currency translation boosted sales by 2.3%, and the prior-year divestiture reduced sales by 2.4%. Segment operating earnings increased 21% to $131 million from $108 million in the year-ago quarter. Segment operating margin came in at 15.6% compared with 13.6% recorded in the prior-year quarter.

Financials

As of Dec 31, 2017, cash and cash equivalents were $1,547 million, up from $1,411 million as of Sep 30, 2017. As of Dec 31, 2017, total debt was $2,079 million, up from $1,844 million as of Sep 30, 2017.

Cash flow from operations came in at $212.7 million in the reported quarter compared with $310.8 million recorded in the year-ago quarter. Return on invested capital was 40.8% as of Dec 31, 2017, up from 34.6% as of Dec 31, 2016.

During the fiscal first quarter, Rockwell Automation repurchased 1.1 million shares for $208.6 million. As of Dec 31, 2017, $399.8 million remained available under the Apr 6, 2016 share repurchase authorization. On Jan 15, 2018, the board of directors authorized the company to expend up to an additional $1 billion to repurchase shares.

Guidance

Rockwell Automation revised its fiscal 2018 guidance. The company raised its adjusted EPS guidance to the range of $7.60-$7.90 from the prior band of $7.20-$7.50. However, the company lowered its reported sales growth outlook range to 4.5-7.5% from the previous range of 5-8%.

Rockwell Automation expects to benefit from expanded product offering and strong customer relationships. Its strategic focus on the Connected Enterprise and substantial investments in technology will steer growth. The company is well positioned to benefit from attractive opportunities in the industrial automation and information market.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. There have been three revisions higher for the current quarter compared to one lower. While looking back an additional 30 days, we can see even more upward momentum.

Rockwell Automation, Inc. Price and Consensus

Rockwell Automation, Inc. Price and Consensus | Rockwell Automation, Inc. Quote

VGM Scores

At this time, ROK has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was also allocated a grade of F on the value side, putting it in the lowest quintile 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.

Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise that ROK has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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