Rockwell Automation Beats Estimates (ABB) (EMR) (ROK) (SI)

Sales inched up 1% to $1.664 billion in the quarter, surpassing the Zacks Consensus Estimate of $1.617 billion. Organic sales increased 5% while currency translation negatively impacted sales by 4 percentage points.

Cost of sales increased 2% year over year to $1 billion from $991 million in the prior-year quarter. Gross profit declined 1% year over year to $654 million, with gross margins contracting 80 basis points (bps) to 39.3%.

Selling, general and administrative expenses decreased marginally to $386 million from $388 million in the prior-year quarter. Segment operating income was $295 million in the quarter compared with $298 million in the fourth quarter of 2011. Segment operating margin contracted 30 basis points to 17.7%.

Segment Results

Architecture & Software: Net sales declined 2% to $671 million in the quarter. Organic sales increased 2% while currency translation affected sales by 4%. Operating earnings were $166.5 million, down 6.4% year over year. Segment operating margin was 24.8% compared with 26% a year ago.

Control Products & Solutions: Net sales increased 2% to $992.7 million in the quarter. Organic sales were up 6% while currency translation impacted sales by 4%. Segment operating earnings improved 7% to $128.8 million. Segment operating margin was 13%, a 60-basis points year-over-year improvement.

Fiscal 2012 Performance

The company reported fiscal 2012 adjusted earnings of $5.29 per share compared with $4.89 in the prior fiscal, surpassing the Zacks Consensus Estimate of $5.09. Including non-operating pension costs and its tax effect, the company reported earnings of $5.13 compared with $4.79 in the prior year.

Sales increased 4% to $6.259 billion, beating the Zacks Consensus Estimate of $6.218 billion. Organic sales increased 6%, acquisitions added 1% while currency translation negatively impacted sales by 3%.

Financials

Rockwell had cash and cash equivalents of $903.9 million as of fiscal 2012 end compared with $988.9 million as of fiscal 2011 end. Total debt was $1.06 billion as of September 30, 2012, compared with $905 million as of September 30, 2011. The debt-to-capitalization ratio was 36.4% as of September 30, 2012, compared with 34.1% as of September 30, 2011. In fiscal 2012, the company generated cash flow from operating activities of $718.7 million, up from $643.7 million in the prior year.

During the reported quarter, Rockwell repurchased 1.4 million shares for $96 million. During fiscal 2012, the company repurchased 3.7 million shares for $265.3 million. As of September 30, 2012, the company had $936.7 million worth of shares remaining under the $1 billion share repurchase authorization.

Guidance

Rockwell expects sales to be around $6.35 to $6.65 billion in fiscal 2013. The company has factored in organic growth of 1% to 5% while currency translation and acquisitions will add one point of growth. It expects earnings in the range of $5.35 to $5.75 per share.

Our Take

During the year, Rockwell Automation hiked the quarterly dividend by 11% and continued to repurchase shares, adding value to the share holders. Rockwell’s commitment toward increasing shareholders return reflects its free cash flow generating capability and a strong balance sheet. Going into 2013, the sluggish global economy and a weaker solutions backlog will remain headwinds for the company.

Based in Milwaukee, Wisconsin, Rockwell Automation is an original equipment manufacturer (OEM) 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 #3 Rank, which translates to a short-term (1 to 3 months) Hold rating.