Back to top

Image: Bigstock

Rockwell Automation (ROK) Down 5.1% Since Last Earnings Report: Can It Rebound?

Read MoreHide Full Article

It has been about a month since the last earnings report for Rockwell Automation (ROK - Free Report) . Shares have lost about 5.1% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Rockwell Automation Q2 Earnings Top Estimates, Decline Y/Y

Rockwell Automation reported adjusted earnings per share (EPS) of $2.50 in second-quarter fiscal 2024, surpassing the Zacks Consensus Estimate of $2.15. The bottom line declined 17% year over year, primarily attributed to lower sales volume and operating margins in the Intelligent Devices, and Software & Control segments. This was somewhat offset by the improved performance of the Lifecycle Services segment.

Including one-time items, earnings were $2.31 per share compared with $2.59 in the year-ago quarter.

Total revenues were $2.13 billion, down 6.6% from the prior-year quarter. The top line beat the Zacks Consensus Estimate of $2.04 billion. Organic sales were down 8.1%. Acquisitions contributed 1.4% to sales growth while currency translation contributed 0.1%.

Operational Update

The cost of sales declined 3.7% year over year to around $1.29 billion. The gross profit declined 11% to $833 million. Selling, general and administrative expenses were flat year over year at $501 million.

Consolidated segment operating income totaled $404 million, down 16.5% from the prior-year quarter. The total segment operating margin was 19% in the fiscal second quarter, lower than the prior-year period’s 21.3%. Lower sales volume, partially offset by lower incentive compensation, led to the downfall in margins.

Segment Results

Intelligent Devices: Net sales amounted to $974 million, down 5% year over year. The segment’s operating earnings totaled $161 million compared with the year-earlier quarter’s $207 million. The segment’s operating margin decreased to 16.5% from the year-ago quarter’s 20.2% due to lower sales volume and unfavorable mix, partially offset by lower incentive compensation.

Software & Control: Net sales slumped 23% year over year to $570 million. The segment’s operating earnings plunged 41% year over year to $146 million. The segment’s operating margin was 25.7% compared with 33.6% in the year-earlier quarter, reflecting the impact of reduced sales volume partially offset by lower incentive compensation, positive price/cost and favorable mix.

Lifecycle Services: Net sales for the segment were $583 million, up 14% year over year. The segment’s operating earnings totaled $97 million compared with the year-ago quarter’s $28 million. The segment’s operating margin was 16.6% compared with the year-ago quarter’s 5.5%. The improvement was driven by higher sales volume, lower incentive compensation and higher margins in Sensia.

Cash Position & Balance Sheet Updates

At the end of the second quarter of fiscal 2024, cash and cash equivalents were approximately $0.47 billion compared with $1.07 billion as of the end of fiscal 2023. Cash flow from operations was $120 million compared with the year-ago quarter’s $187 million. Return on invested capital was 18% as of Mar 31, 2024.

ROK’s long-term debt was $2.86 million at the end of the quarter, flat compared with the fiscal 2023 end.

ROK repurchased 0.7 million shares for $195 million. As of the end of the quarter, $0.6 billion was available under the existing share-repurchase authorization.

FY24 Guidance

Citing excess inventory buildup with customers, Rockwell Automation does not anticipate a ramp-up in order levels in fiscal 2024. ROK currently expects adjusted EPS in the range of $10.00 - $11.00, much lower than the earlier stated range of $12.00-$13.50.

The company expects to report a decline in sales ranging from 4% to 6%. ROK had earlier projected year-over-year sales growth in the range of 0.5% to 6.5%. Organic sales are anticipated to decline in the band of 6-8%. The earlier projection for organic sales growth was a range of negative 2.0% to positive 4.0%.

CFO Transition

Rockwell Automation declared that Nicholas Gangestad, currently serving as Senior Vice President and Chief Financial Officer, will be retiring. The company has initiated the process of finding his replacement, and until the new CFO is selected, Nicholas will remain in his current role.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -37.69% due to these changes.

VGM Scores

At this time, Rockwell Automation has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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. It's no surprise Rockwell Automation has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Rockwell Automation, Inc. (ROK) - free report >>

Published in