Rockwell Automation (ROK) Triples EPS

Rockwell Automation Inc. (ROK) delivered EPS of 83 cents in its third quarter ended June 30, 2010, beating the Zacks Consensus Estimate of 80 cents. In the quarter, EPS increased more than threefold compared with EPS of 23 cents in the year-ago quarter. Robust growth across all regions and particularly in the Architecture & Software segment culminated in the year-over-year improvement.

Rockwell Automation’s revenues of $1,268.1 million surpassed the Zacks Consensus Estimate of $1,227 million. On a year-over-year basis, revenues jumped 25% reflecting growth across all regions. Canada posted the highest increase of 46%, followed by Latin America showing a strong rebound of 39%. Asia-Pacific posted a growth of 29% driven by exceptional performance in China with 42% year-over-year organic growth.

The company is witnessing increased demand as manufacturers who had slashed their capital spending budgets during the recession have resumed investment in automation systems that will help reduce the costs of running their factories.

Costs & Margin Performance

Cost of sales increased 19% year over year to $760.8 million, and as a percentage of revenues it plummeted 340 basis points to 60% in the quarter. Gross profit jumped 37% to $507.3 million and gross margin surged 340 basis points to 40%.

Selling, general and administrative expenses increased 9% year over year to $171.6 million, where as a percentage of sales it dropped 390 basis points to 26.3%. Rockwell Automation’s operating income surged 167% year over year to $174 million with operating margin doubling to 14% in the quarter.

Segment Performance

The Architecture & Software segment showed substantial improvement in revenues and margins in the quarter. Revenues were $553.9 million, up 39% from the year-earlier period. The segment’s operating income almost tripled to $125.4 million. Segment operating margin more than doubled to 22.6% from 10.8% posted in the year-ago quarter, primarily due to volume leverage.

The Control Products & Solutions segment’s revenues hiked 17% to $714.2 million. Currency translation contributed less than 1% to the increase. The segment’s operating income was $72.6 million, a 69% improvement over $43.0 million in the year-ago quarter. The segment recorded an operating margin of 10.2%, a whopping 320-basis point jump year over year as a result of volume leverage.

Financial Position

As of June 30, 2010, Rockwell Automation had cash and cash equivalents of $826 million, up from $817.2 million as of March 31, 2010.

As of June 30, 2010, debt-to-capitalization ratio was 39.7% compared with 38.9% as of March 31, 2010.

During the quarter, Rockwell Automation repurchased 1.2 million shares of its common stock for $67.7 million. As of June 30, 2010, the company had $528.1 million available under its $1.0 billion share repurchase authorization.


Rockwell Automation expects fourth-quarter revenues to outpace its third-quarter performance based on the strength of its solutions and services business and emerging markets. Further, based on its third-quarter results, the company increased its fiscal 2010 guidance for earnings per share of $2.95 to $3.05 from its previous range of $2.60 to $2.90. The company also upped its revenue projection to approximately $4.8 billion from it earlier guidance of $4.65–$4.8 billion.

Our Take

Rockwell Automation has a strong global market presence. The company focuses on further expanding its global footprint in emerging markets, as it expects automation growth rates in emerging markets to be higher than growth rates in developed countries. Growth in emerging markets is the company’s key to meeting its target of deriving 60% of revenues from outside the U.S. by 2013.

As it enters new markets, Rockwell intends to broaden its portfolio of products, services and solutions. Successful diversification into emerging markets and expansion of its product portfolio will drive the company’s top-line growth over the long term.

Milwaukee, Wisconsin-based 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 Automation operates through two segments — Architecture and Software and Control Products and Solutions.

ROCKWELL AUTOMT (ROK): Free Stock Analysis Report

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