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Rockwell Automation (ROK) Q4 Earnings: A Beat in the Offing?

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Rockwell Automation Inc. (ROK - Free Report) is scheduled to report fourth-quarter fiscal 2018 results before the opening bell on Nov 7.

In the last reported quarter, Rockwell Automation delivered earnings of $2.16 per share that beat the Zacks Consensus Estimate by 6.4%. The figure also improved 23% year over year. Notably, the company’s earnings have surpassed estimates in three of the trailing four quarters, of the average beat being 5.58%.

Let’s see how things are shaping up for this announcement.

Key Factors to Consider

Rockwell Automation expects that organic sales growth in the fiscal fourth quarter will be around 7.5%, backed by easier comparisons in automotive business and strength in heavy industries. Heavy industries performed well in third-quarter fiscal 2018, led by semiconductor, metals and chemicals. The momentum will likely continue in the fourth quarter aided by growth in emerging markets which is spurring demand for semiconductor and other heavy industries. However, fiscal fourth-quarter adjusted earnings per share will be negatively impacted by less than 5 cents due to tariffs imposed by the United States on certain goods imported from China. Nevertheless, accelerated investments to expand Process capabilities will benefit Rockwell Automation’s fiscal fourth-quarter despite weakness in Transportation vertical and tariff woes.

The Zacks Consensus Estimate for revenues for the fiscal fourth quarter is pegged at $1.8 billion, depicting a year-over-year rise of 6.6%. The Zacks Consensus Estimate for earnings at $2.03 per share reflects a year-over-year improvement 20%.

The Zacks Consensus Estimate for the Architecture & Software segment’s net sales is pegged at $808 million, an estimated year-over-year rise of 7%. The estimate for the Control Products & Solutions segment’s sales is pegged at $964 million, an increase of 5% over the prior-year quarter.

The Architecture & Software segment’s operating profit is expected to increase 22% on a year-over-year basis to $217 million. Operating profit for the Control Products & Solutions segment is anticipated to surge around 40% year over year to $148 million.

Additionally, Rockwell Automation expects its fiscal 2018 adjusted EPS to be $7.90-$8.10. At the mid-point, EPS guidance represents year-over-year growth of 18%. Segment operating margin is projected at around 21.5%. The results will be driven by a favorable global manufacturing environment and positive macroeconomic indicators.

Also, the company anticipates to report revenues of about $6.7 billion and organic sales growth of 5.5% for the fiscal. Organic sales growth is likely to be driven by higher expected growth rates in the solutions and services businesses, and increased backlogs in its product businesses. Further, above-market growth through a combination of share gains in core platforms, double-digit growth in Information Solutions and Connected Services, as well as contribution from acquisitions will drive results in the fiscal.

The Zacks Consensus Estimate for net sales and EPS is pegged at $6.7 billion and $8.03 for fiscal 2018, respectively.

Earnings Whispers

Our proven model shows that Rockwell Automation is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen.

Earnings ESP: The Earnings ESP for Rockwell Automation is +0.43%. This is because the Most Accurate estimate of $2.04 comes in higher than the Zacks Consensus Estimate of $2.03. A favorable Earnings ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Rockwell Automation currently carries a Zacks Rank of 2. It should be noted that stocks with a Zacks Rank of 1, 2 or 3 have a significantly higher chance of beating earnings.

Conversely, stocks with a Zacks Rank #4 or 5 (Sell rated) should never be considered going into an earnings announcement.

The combination of Rockwell Automation’s Zacks Rank #2 and Earnings ESP of +0.43% makes us confident of a likely earnings beat.

Share Price Performance

Rockwell Automation has underperformed the industry it belongs to over the past year. The stock has dipped around 12%, while the industry has recorded loss of around 10% during the same time frame.

Stocks Worth a Look

Here are a few stocks worth considering as these have the right combination of elements to post an earnings beat this quarter.

Affimed N.V. (AFMD - Free Report) has an Earnings ESP of +5.88% and carries a Zacks Rank #2. The company’s shares have been up 89% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Archer Daniels Midland Company (ADM - Free Report) has an Earnings ESP of +0.21% and carries a Zacks Rank #2. Its shares have gained 22% in the past year.

The AES Corporation (AES - Free Report) has an Earnings ESP of +1.43% and a Zacks Rank #2. The stock has rallied 41% in a year’s time.

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