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Rockwell Automation, Inc. (ROK - Analyst Report) reported third quarter fiscal 2013 adjusted earnings of $1.54 per share, up 12% from $1.37 earned in the prior-year quarter. The results beat the Zacks Consensus Estimate of $1.40.

Earnings exclude the net effect of non-operating pension costs and their related tax effect of 9 cents per share in the reported quarter and 4 cents in the year-ago quarter. Including this, earnings from continuing operations were $1.45 per share compared with the prior-year quarter’s earnings of $1.33.

Operational Update

Total revenue was $1.624 billion in the reported quarter, up 4% year over year. The results surpassed the Zacks Consensus Estimate of $1.598 billion. Organic sales growth was 4% year over year, while acquisitions and currency translation had no significant impact on sales in the quarter.

Cost of sales increased 4.5% year over year to $971 million. Gross profit grew 3.4% to $652.9 million from $631.5 million in the year-ago quarter. Gross margin contracted 30 basis points (bps) year over year to 40%.

Selling, general and administrative expenses went up 3.7% to $383.7 million from the prior-year quarter. Segment operating income was $317.8 million compared with $292 million in the third quarter of 2012. Operating margin expanded 90 basis points year over year to 19.6%, primarily on volume leverage and productivity.

Segment Results

Architecture & Software: Net sales increased 1% year over year to $671 million in the quarter. Segment operating earnings were $188.6 million compared with $185.2 million in the year-ago quarter. Segment operating margin increased to 28.1% from 27.9% a year ago.

Control Products & Solutions: Net sales grew 6% year over year to $953.2 million in the quarter. Segment operating earnings increased 20.8% to $129.2 million from $106.9 million in the year-ago quarter. Segment operating margin expanded 170 (bps) year over year to 13.6%.

Financials

Rockwell Automation had cash and cash equivalents of $1024.7 million as of Jun 30, 2013 compared with $903.9 million as of Sep 30, 2012. Total debt was $1.12 billion as of Jun 30, 2013 compared with $1.06 billion as of Sep 30, 2012. The debt-to-capitalization ratio was 36% as of Jun 30, 2013, flat with Sep 30, 2012.

In the third quarter of fiscal 2013, the company generated a cash flow from operating activities of $663.8 million compared with $328.6 million in the prior-year quarter. Return on invested capital was 31% as of Jun 30, 2013 compared with 30.4% as of Jun 30, 2012. The company reported free cash flow of $263.6 million compared to $232.2 million in the prior-year quarter.

On Apr 3, 2013, Rockwell declared an 11% increase in the quarterly dividend to 52 cents per share on common stock, which was paid on Jun 10, 2013.

Share Repurchase

During the reported quarter, Rockwell Automation repurchased 1.2 million shares for $104.3 million. As of Jun 30, 2013, the company had $618.6 million worth of shares remaining under the $1 billion share repurchase authorization.

Guidance

Rockwell Automation revised its sales guidance to $6.3 billion from the previous band of $6.25–$6.45 billion for fiscal 2013, representing an organic growth of around 1%. Outlook for earnings per share was also modified to $5.50–$5.70 per share from $5.40–$5.70 per share.

Our View

Rockwell Automation will likely benefit from its expansion in the emerging markets. Investment in Logix, recent acquisition of China-based medium voltage drives business and restructuring activities could drive growth. A strong balance sheet position and free cash flow, dividends and share repurchases are also expected to generate long-term shareholder value. However, uncertainty in the global economic scenario remains headwind.

Milwaukee, WI-based Rockwell Automation is an original equipment manufacturer of industrial automation equipment, application specific integrated software and consulting design services. The company is a leading global provider of industrial automation power, control and information solutions.

Rockwell currently retains a Zacks Rank #4 (Sell).

iRobot Corporation (IRBT - Analyst Report) belongs to the same industry where Rockwell operates and carries a Zacks Rank #1 (Strong Buy). Rockwell’s peers HollySys Automation Technologies, Ltd. (HOLI - Snapshot Report) and Edwards Group Limited are yet to announce their quarterly results.

 

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