On Jan 8, 2016, shares of Rockwell Automation Inc. ROK touched a 52-week low of $93.22 to finally close a tad higher at $93.47. The Zacks Rank #5 (Strong Sell) stock has plunged 10.3% since it posted dismal fourth-quarter fiscal 2015 results on Nov 10, 2015.
What Led to the Share Price Decline?
In the fiscal fourth-quarter, Rockwell Automation’s adjusted earnings declined 16% year over year to $1.57 per share. Earnings declined in a weak sales backdrop through the quarter, with September being especially weak, particularly in the U.S.
Notably, Rockwell Automation’s customers have become more cautious with respect to capital expenditures and operating expenses. Going forward, the company expects organic sales in the first quarter of fiscal 2016 to be down in mid-single digits year over year due to a high-single-digit dip in the U.S. Rockwell Automation cautions that sequential growth in the balance of 2016 will not be sufficient to drive positive organic growth for the year.
The fourth quarter also faced the largest negative impact from currency (8%) than any other quarter in fiscal 2015. At current exchange rates, Rockwell Automation expects a headwind from currency in fiscal 2016 first quarter as well. For fiscal 2016, the company expects currency to reduce sales by 300 basis points.
Rockwell Automation initiated fiscal 2016 adjusted earnings per share guidance at $5.90 to $6.40 on the back of revenues of $6 billion. Compared to adjusted earnings per share of $6.40 earned in fiscal 2015, it reflects a year-over-year decline of 8% to flat results. Organic sales are expected to be flat to down 4% year over year.
Persistent decline in oil and gas prices will continue to weigh on Rockwell Automation’s results. Rockwell Automation has an exposure of roughly 12% to oil and gas. The company also noted capital spending is still very constrained in China.
The global mining industry has been noticeably sluggish due to oversupply and weak commodity prices, particularly in China and Australia. Continued weakness in the mining industry and lack of major projects will continue to affect Rockwell Automation’s results in the coming quarters.
Moreover, over the last 60 days, all the estimates have moved south causing the Zacks Consensus Estimate for fiscal 2016 to drop by 9.3% to $6.03 per share and that for fiscal 2017 to decline 9.9% to $6.45 per share.
Stocks that Warrant a Look
Stocks in the same sector that are worth a look include Albany International Corp. AIN, Astec Industries, Inc. ASTE and Berry Plastics Group, Inc. BERY. All these stocks carry a Zacks Rank #2 (Buy).
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