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Rockwell Automation, Inc. (ROK - Analyst Report) reported fourth-quarter fiscal 2013 (ended Sep 30, 2013) adjusted earnings of $1.62 per share, up 14% from $1.42 earned in the prior-year quarter. The results beat the Zacks Consensus Estimate of $1.52.

Adjusted 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 $1.53 per share compared with the prior-year quarter’s earnings of $1.38.

Total revenues were $1,715.7 million in the reported quarter, up 3% year over year. The results surpassed the Zacks Consensus Estimate of $1,695 million. Organic sales growth was also 3% year over year.

Operational Update

Cost of sales increased around 1% year over year to $1,018.5 million. Gross profit rose 6.5% to $697 million from $654 million in the year-ago quarter. Gross margin expanded 130 basis points (bps) year over year to 40.6%.

Selling, general and administrative expenses went up 4.4% from the prior-year quarter to $403.7 million. Consolidated segment operating income was $357.8 million compared with $303.4 million in the fourth quarter of 2012. Operating margin expanded 270 bps year over year to 20.9%, primarily due to higher sales, mix, strong productivity and the favorable resolution of certain legal matters.

Segment Results

Architecture & Software: Net sales increased 6% year over year to $714.3 million in the fourth quarter. Segment operating earnings were $217.7 million compared with $169.4 million in the year-ago quarter. Segment operating margin increased to 30.5% from 25.2% a year ago.

Control Products & Solutions: Net sales inched up 1% year over year to around $1 billion. Segment operating earnings increased 4.5% to $140 million from $134 million in the year-ago quarter. Segment operating margin expanded 50 bps year over year to 14%.

Fiscal 2013 Performance

Rockwell posted adjusted earnings of $5.71 per share for fiscal 2013, up 8% from $5.29 a share in fiscal 2012. Earnings were ahead of the Zacks Consensus Estimate of $5.62. Including special items, Rockwell posted earnings of $5.36 per share for the year compared with $5.13 in fiscal 2012.

Revenues for the full year increased 1.5% year over year to roughly $6.35 billion from $6.25 billion in fiscal 2012. It managed to surpass the Zacks Consensus Estimate of $6.33 billion.

Financials

As of Sep 30, 2013, cash and cash equivalents amounted to $1200.9 million versus $903.9 million as of Sep 30, 2012. Long-term debt was $905 million as of Sep 30, 2013, flat year over year. The debt-to-capitalization ratio contracted 650 bps to 29.5% as of Sep 30, 2013, from 36% as of Sep 30, 2012.

Cash from operations for the twelve-month period ended Sep 30, 2013, were $1014.8 million, up 41% from $718.7 million in the year-ago comparable period. Return on invested capital was 31.4% as of Sep 30, 2013, compared with 30.3% as of Sep 30, 2012.

On Nov 6, 2013, Rockwell declared a 12% increase in its quarterly dividend to 58 cents per share. The increased dividend will be paid on Dec 10, 2013, to shareholders of record as of Nov 18, 2013.

Share Repurchase

During the reported quarter, Rockwell Automation repurchased 0.9 million shares for $83.5 million. As of Sep 30, 2013, the company had $535.1 million worth of shares remaining under the $1 billion share repurchase authorization.

Guidance

Rockwell Automation expects organic revenue growth in the range of 2–6% for fiscal 2014, translating into a midpoint sales of $6.6 billion. The company forecast adjusted earnings per share of $5.95–$6.35 for the full year.

Our View

Rockwell Automation will benefit from expansion in the emerging markets and acquisitions. 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 #2 (Buy).

Adept Technology Inc. (ADEP - Snapshot Report) belongs to the same industry where Rockwell operates and carries a Zacks Rank #2 (Buy). Rockwell’s peers HollySys Automation Technologies, Ltd. (HOLI - Snapshot Report) is expected to announce its first-quarter fiscal 2013 results (ended Sep 30, 2013) on Nov 18.

Another peer, iRobot Corp. (IRBT - Analyst Report) reported earnings per share of 26 cents in the third quarter (ended Sep 28, 2013), compared with 54 cents in the year-ago quarter. Earnings, however, managed to surpass the Zacks Consensus Estimate of 24 cents.

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