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Why Is Rockwell Automation (ROK) Down 2.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Rockwell Automation (ROK - Free Report) . Shares have lost about 2.9% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Rockwell Automation Q4 Earnings Beat Estimates, Up Y/Y

Rockwell Automation    delivered adjusted earnings of $2.11 in fourth-quarter fiscal 2018 (ended Sep 30, 2018), up 25% from the prior-year quarter figure of $1.69. The bottom line also surpassed the Zacks Consensus Estimate of $2.03.

Including one-time items, the company reported earnings of $2.80 per share compared with earnings of $1.57 per share registered in the year-ago quarter.

Total revenues came in at $1,730 million, up 4% year over year but missed the Zacks Consensus Estimate of $1,778 million. Organic sales rose 7%. Foreign currency translations reduced sales by 2.2% and divestitures in the prior year reduced sales by 1.4%.

Operational Update

Cost of sales decreased 2% year over year to $997 million. Gross profit increased 13% to $733 million from $648 million reported in the year-ago quarter. Selling, general and administrative expenses dropped 1.7% year over year to $418 million.

Consolidated segment operating income totaled $359 million, up 27% from $284 million recorded in the prior-year quarter. Segment operating margin was 20.8% in the fiscal fourth quarter, up 380 basis points from the year-earlier quarter.

Segment Results

Architecture & Software: Net sales rose 5% year over year to $787 million in the fiscal fourth quarter. While organic sales were up 7%, currency translation reduced sales by 2.3%. Segment operating earnings came in at $220 million compared with $178 million recorded in the prior year. Segment operating margin was 27.9% compared with 23.7% witnessed in the year-ago quarter.

Control Products & Solutions: Net sales climbed 3% year over year to $942 million in the reported quarter. While organic sales increased 7.5%, currency translation reduced sales by 2.1% and the prior-year divestiture reduced sales by 2.5%. Segment operating earnings increased 32% to $140 million from $106 million in the year-ago quarter. Segment operating margin came in at 14.8% compared with 11.5% recorded in the prior-year quarter.

Financials

As of Sep 30, 2018, cash and cash equivalents totaled $619 million, down from $1,411 million as of Sep 30, 2017. As of Sep 30, 2018, total debt was $1,776 million, down from $1,844 million as of Sep 30, 2017.

Cash flow from operations in fiscal 2018 summed $1,300 million compared with $1,034 million in fiscal 2017. Return on invested capital was 48% as of Sep 30, 2018, up from 39% as of Sep 30, 2017.

During the reported quarter, Rockwell Automation repurchased 2.2 million shares for $396 million. As of the quarter end, $1,108.4 million was available under the existing share-repurchase authorization.

Fiscal 2018 Performance

Rockwell Automation reported adjusted earnings per share of $8.11 in fiscal 2018, up 20% from $6.76 per share recorded last year. The reported figure also surpassed the Zacks Consensus Estimate of $8.03 and came above management’s guided range of $7.90-$8.10. Including one-time items, the bottom line came in at $4.21, down 34% from $6.35 recorded in fiscal 2017.

Revenues jumped 5.6% year over year to $6.7 billion from $6.3 billion in fiscal 2017. The top line came in line with the Zacks Consensus Estimate.

Guidance

For fiscal 2019, Rockwell Automation expects its adjusted EPS at $8.85-$9.25. It also anticipates organic sales to grow 3.7-6.7%. Moreover, focus on productivity, actions to mitigate the impact of tariffs and favorable macroeconomic indicators are expected to drive the company’s growth. However, global trade tensions remain a woe.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.23% due to these changes.

VGM Scores

Currently, Rockwell Automation has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Rockwell Automation has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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