Rockwell Automation, Inc. ( ROK - Analyst Report ) reported third quarter of fiscal 2012 earnings of $1.33 per share compared with $1.22 in the prior-year quarter. The results were was ahead of the Zacks Consensus Estimate of $1.31.

Sales grew 3% to $1.560 billion in the quarter, missing the Zacks Consensus Estimate of $1.598 billion. Organic sales contributed 7 percentage points to the increase, while currency translation negatively impacted sales by 4 percentage points.

Cost of sales increased 2% year over year to $928.9 million from $909.4 million in the prior-year quarter. Gross profit improved 4.1% year over year to $631.5 million, with gross margins expanding 50 basis points (bps) to 40.5%.

Selling, general and administrative expenses decreased marginally to $369.8 million from $370 million in the prior-year quarter. Operating income went up to $284 million in the quarter from $263.3 million in the same period of 2011. Operating margin improved 80 bps to 18.2%.

Segment Results

Architecture & Software: Net sales declined 1% to $663.8 million in the quarter. Organic sales contributed 3 percentage points while currency translation affected sales by 4 percentage points. Operating earnings were $182.3 million, up 3.6% year over year. Operating margin was 27.5% compared with 26.1% a year ago.

Control Products & Solutions: Net sales increased 6% to $896.6 million in the quarter. Acquisitions added 1 percentage point and organic sales added 10 percentage points to the increase while currency translation reduced sales by 5 percentage points. Operating earnings improved 16.4% to $101.7 million. Operating margin was 11.3%, a 90 bps year-over-year improvement.

Financials

Rockwell had cash and cash equivalents of $805.6 million as of June 30, 2012, compared with $1.02 billion as of June 30, 2011. Total debt was $1.175 billion as of June 30, 2012, compared with $905 million as of June 30, 2011. The debt-to-capitalization ratio was 37.9% as of June 30, 2012, compared with 36% as of March 31, 2012, and 34% as of December 31, 2011.

In the first nine months of fiscal 2012, the company’s cash flow from operating activities reduced to $328.6 million from $462.5 million in the first nine months of fiscal 2011. Capital expenditures during the period increased to $94.9 million from $76 million in the comparable prior-year period.

During the quarter, Rockwell repurchased 1.6 million shares for $121 million. The company had $32.5 million worth of shares remaining under the $1 billion share repurchase authorization as of June 30, 2012.

Guidance

Rockwell expects sales to be around $6.2 billion in fiscal 2012, down from the previous guidance of between $6.25 billion and $6.45. It expects earnings in the range of $5.00 to $5.20 per share, down from the previous guidance of $5.10 to $5.40 per share.

Our Take

Recently, Rockwell hiked the quarterly dividend by 11% to 47 cents per share, adding value to the share holders. The company’s commitment towards increasing shareholders’ return reflects its free cash flow generating capability and a strong balance sheet.

Moreover, its Board has approved the addition of $1 billion to its share repurchase program. A lower share count would turn out to be a tailwind for earnings per share for the next few quarters.

However, the company faced headwinds from currency in the reported quarter. It is thought that currency translation would reduce sales further in fourth quarter of fiscal 2012.

Rockwell competes with ABB Ltd ( ABB - Snapshot Report ) , Emerson Electric Company ( EMR - Analyst Report ) and Siemens AG ( SI - Analyst Report ) . Currently, it retains a Zacks #3 Rank, which translates to a short-term (1 to 3 months) Hold rating. We have a long-term Neutral recommendation on the stock.