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Rockwell Automation (ROK) Down 1.8% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Rockwell Automation (ROK - Free Report) . Shares have lost about 1.8% 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 Beats on Q2 Earnings, Hikes '21 View

Rockwell Automation reported adjusted earnings of $2.41 in second-quarter fiscal 2021, beating the Zacks Consensus Estimate of $2.15. The bottom line, however, declined 2.4% year over year primarily due to the reinstatement of incentive compensation and a higher adjusted effective tax rate.

Including one-time items, the company’s earnings came in at $3.54 per share, reflecting a significant improvement from the year-ago quarter’s $1.13.

Total revenues were $1,776 million, up 5.6% from the prior-year quarter. The top line beat the Zacks Consensus Estimate of $1,703 million. Organic sales in the quarter were up 1.3%, currency translation had a positive impact of 2.4%. Further, acquisitions contributed 1.9% to sales.

Operational Update

Cost of sales increased 2.6% year over year to $1,009 million. Gross profit climbed 9.7% year over year to $767 million. Selling, general and administrative expenses flared up 19.6% year over year to $421 million.

Consolidated segment operating income totaled $390.1 million, up 5% from the prior-year quarter. Segment operating margin was 22% in the fiscal second quarter, flat year over year.

Segment Results

Intelligent Devices: Net sales amounted to $850 million in the fiscal second quarter, reflecting year-over-year growth of 8%. Segment operating earnings totaled $202 million compared with the prior-year quarter’s $181 million. Segment operating margin expanded to 23.8% in the quarter compared with the year-ago quarter’s 23%, on higher sales and lower spending, partly offset by the reinstatement of incentive compensation.

Software & Control: Net sales increased 12% year over year to $502 million in the reported quarter. Segment operating earnings jumped 9.5% year over year to $149.8 million. Segment operating margin was 29.8% compared with the 30.5% recorded in the year-earlier quarter.

Lifecycle Services: Net sales for the segment amounted to $424 million in the reported quarter, reflecting a year-over-year decline of 5.4%. Segment operating earnings totaled $38 million compared with the prior-year quarter’s $54 million. Segment operating margin was 9% in the quarter compared with the year-earlier quarter’s 12.1%.

Financials

As of end of second-quarter fiscal 2021, cash and cash equivalents were around $642 million compared with $705 million as of the end of fiscal 2020. As of Mar 31, 2021, total debt was around $2 billion, relatively flat as of Sep 30, 2020.

Cash flow from operations during second-quarter fiscal 2021 was $595.4 million compared with the prior-year quarter’s $448.5 million. Return on invested capital was 44.6% as of Mar 31, 2021, compared with 25.9% as of Mar 31, 2020.

During the reported quarter, Rockwell Automation repurchased 0.4 million shares for $92 million. As of the end of second-quarter fiscal 2021, $674 million was available under the existing share-repurchase authorization.

Fiscal 2021 Guidance Raised

The company witnessed double-digit increase in orders on a sequential and year-over-year basis, driven by growth in core automation platforms, Information Solutions & Connected Services (IS/CS), and recent buyouts. Backed by solid order strength, Rockwell Automation has raised its guidance for fiscal 2021 to the band of $8.95-$9.35 from the previous estimate of $8.70-$9.10. Organic sales growth is expected between 5.5% and 8.5%, up from the prior expectation of 4.5% to 7.5%. Reported sales growth is anticipated in the range of 9% to 12%, up from the previous band of 8.5% to 11.5%. Inorganic sales growth is projected to be around 1.5% for the fiscal year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Rockwell Automation has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Rockwell Automation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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