Rockwell Automation, Inc. (ROK) reported a 2% increase in EPS to $1.16 in the second quarter of fiscal 2012 from $1.14 in the same quarter of prior fiscal year, but fell short of the Zacks Consensus Estimate by 11 cents.
Sales in the quarter grew 7% to $1.56 billion, lower than the Zacks Consensus Estimate of $1.57 billion. Acquisitions contributed 1 percentage point to the increase, while currency translation negatively impacted sales by 1 percentage point.
Cost of sales increased 6% to $943 million from $888 million in the prior-year quarter. Gross profit improved 7% to $618.3 million with gross margins expanding 20 basis points to 39.6%. Selling, general and administrative expenses upped 5% to $373 million.
Operating income went up to $245 million in the quarter from $220 million in the same period of 2011. Operating margin improved 60 basis points to 15.7% from 15.1% in the prior-year quarter.
Segment Results
Architecture & Software: Sales in the quarter rose 7% to $665 million. Currency translation affected sales by 1 percentage point. Operating earnings were $167.7 million, up 10% from $152.2 million in the second quarter of fiscal 2011. Operating margin was 25.2% compared with 24.4% a year ago.
Control Products & Solutions: Sales increased 7% to $896.3 million in the quarter. Acquisitions added 2 percentage points to the increase while currency translation reduced sales by 1 percentage point. Operating earnings improved to $100.6 million from $92 million in the prior-year quarter. Operating margin was 11.2%, a 20 basis improvement year over year.
Financials
Rockwell had cash and cash equivalents of $811.8 million as of March 31, 2012, compared with $884 million as of December 31, 2011. Total debt was $1.16 billion as of March 31, 2012 compared with $1.26 billion as of December 31, 2011. The debt-to-capitalization ratio as of March 31, 2012 was 36% compared with 34% as of December 31, 2011.
In the first half of fiscal 2012, the company’s cash flow from operating activities reduced to $64.5 million from $237.8 million in the first half of fiscal 2011. Capital expenditures during the period increased to $62.5 million from $42.5 million in the comparable prior-year period.
During the quarter, Rockwell repurchased 0.5 million shares for $40.6 million. The company had $153.4 million worth of shares remaining under the $1.0 billion share repurchase authorization as of March 31, 2012.
Guidance
Based on projected sales of $6.25 billion to $6.45 billion in fiscal 2012, Rockwell expects EPS to be in the range of $5.10 to $5.40. This compares with Rockwell’s previous sales guidance of $6.2 billion to $6.5 billion and EPS guidance range of $5.05 to $5.45.
Our Take
We believe Rockwell Automation is well positioned for long-term growth based on its strong global market presence. The company is focused on further expanding its footprint in the emerging markets, as it expects automation growth rates in these markets to be 50% higher than growth rates in the developed countries.
The company has a long-term goal of deriving 30% of its total revenue from the emerging markets. This is the key to meeting the company’s target of generating 60% of its revenue from outside the U.S. by 2013.
Based in Milwaukee, Wisconsin, Rockwell Automation is an original equipment manufacturer of industrial automation equipment, application specific integrated software and consulting design services. The company is a leading global provider of industrial automation power, control, and information solutions.
Rockwell competes with ABB Ltd (ABB), Emerson Electric Company (EMR) and Siemens AG (SI). Currently, it retains a Zacks #2 Rank on its stock, which translates to a short-term (1 to 3 months) rating of Buy.
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