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Why Is Rockwell Automation (ROK) Down 1.5% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Rockwell Automation, Inc. (ROK - Free Report) . Shares have lost about 1.5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 Q3 Earnings Top, Raises Guidance

Rockwell Automation reported adjusted earnings per share of $1.76 in third-quarter fiscal 2017 (ended Jun 30, 2017), up 14% from $1.55 in the prior-year quarter. Further, earnings outpaced the Zacks Consensus Estimate of $1.64, a positive earnings surprise of 7%. The year-over-year performance was driven by higher sales, lower tax rates, partially offset by higher incentive compensation.

Including one-time items, the company’s earnings came in at $1.67 per share, up 14% from the year-ago quarter figure of $1.46.

Total revenue was $1,599 million in the quarter, up 8.5% year over year and surpassed the Zacks Consensus Estimate of $1,573 million. Organic sales rose 8.2%, acquisitions contributed 1.2% while unfavorable foreign currency translations had an impact of 0.9%. Double-digit increases in Asia Pacific and Latin America contributed to the improvement. Sales in the U.S., Rockwell Automation’s largest market grew 10%, including the contribution from acquisitions. Transportation, food and beverage, as well as semiconductor were reportedly strong.

Operational Update

Cost of sales increased 7.5% year over year to $922 million. Gross profit advanced 10% to $677.7 million from $616.8 million in the year-ago quarter. Selling, general and administrative expenses increased 12% to $386.8 million.

Consolidated segment operating income was $337 million, up 8% from $311 million in the prior-year quarter. Segment operating margin was 21.1% in the quarter, flat from the prior-year quarter on the back of higher sales, partially negated by higher incentive compensation.

Segment Results

Architecture & Software: Net sales rose 10% year over year to $732 million in third-quarter fiscal 2017. Organic sales increased 10.5%, acquisitions contributed 0.3% while currency translations hurt sales by 1%. Segment operating earnings were $204 million, compared with $184 million a year ago. Segment operating margin was 27.9%, compared with 27.6% in the prior-year quarter.

Control Products & Solutions: Net sales rose 7.4% to $867million in the reported quarter. Organic sales increased 6.3%, acquisitions contributed 1.9%, while currency translations dented sales by 0.8%. Segment operating earnings improved 5% to $133 million from $127 million in the year-ago quarter. Segment operating margin was 15.3% compared with 15.7% in the prior-year quarter.

Financials

As of Jun 30, 2017, cash and cash equivalents were $1,549 million, up from $1,526 million as of Sep 30, 2016. As of Jun 30, 2017, total debt was $1,842 million, down from $1,964 million as of Sep 30, 2016.

Cash flow from operations for the nine month period ended Jun 30, 2019 came in at $927 million compared with $675 million in the prior-year comparable period. Return on invested capital was 38.8% as of Jun 30, 2017, increasing from 32.6% as of Jun 30, 2016.

During the reported quarter, Rockwell Automation repurchased 740,000 of its shares for $116 million. As of the quarter end, $643 million was available under the existing share repurchase authorization.

Guidance

Rockwell Automation stated that the macro environment continues to improve. Backed by strong performance in fiscal 2017 so far, the company hiked adjusted EPS guidance to the range of $6.40 to $6.80 per share from the prior range of $6.45 to $6.75. The company forecasts reported sales growth and organic sales growth to be in the range of 7% and 6%, respectively. Sales are projected to be around $6.3 billion, factoring a smaller headwind from currency.

Per the company, its Connected Enterprise strategy is working well and positions it well for growth in the future. Notably, the pilots have been successful across multiple industries.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

VGM Scores

At this time, the stock has a nice Growth Score of B, while its Momentum lags a bit with a C. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is more suitable for growth than momentum investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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