tiprankstipranks
Rockwell Automation Declines on Stone-Cold Q2 Results
Market News

Rockwell Automation Declines on Stone-Cold Q2 Results

Rockwell Automation, Inc. (NYSE: ROK) delivered weaker-than-expected results for the second quarter of Fiscal 2022 (ended March 31, 2022). The earnings and revenues in the quarter missed the consensus estimate by 27.2% and 7.2%, respectively.

Lower-than-expected second-quarter results and weak projections for Fiscal 2022 (ending September 2022) impacted investors’ sentiment. Shares of this $24.8-billion company declined 14.5% to close at $213.74 on Tuesday.

Rockwell specializes in providing digital transformation and industrial automation solutions. It is headquartered in Milwaukee, WI.

Financial Highlights

Rockwell’s adjusted earnings in the second quarter were $1.66 per share, below the consensus estimate of $2.28 per share. Also, the bottom line decreased 31.1% from the year-ago tally.

Revenues were $1.81 billion in the quarter, lower than the consensus estimate of $1.95 billion. The top line grew 1.8% from the year-ago quarter, driven by organic sales growth of 1.3% and acquisition gains of 2.3%, partially offset by a 1.8% adverse impact from forex woes.

Orders in the quarter increased 37% from the year-ago quarter. Total annual recurring revenue (ARR) grew 50% in the quarter.

The Intelligent Devices segment’s sales were $808.6 million in the quarter, down 4.9% year-over-year. Revenues of the Software & Control segment increased 6.5% to $534.9 million. The Lifecycle Services revenues in the quarter were $464.6 million, up 9.7% year-over-year.

On a geographical basis, revenues in North America inched up 0.6% year-over-year to $1,071.6 million, while that in the EMEA region declined 1.7% to $348.9 million. Also, revenues in the Asia Pacific and Latin America grew 7.8% to $266.2 million and 11.7% to $121.4 million, respectively.

The cost of sales grew 13.4% year-over-year to $1,144 million, and gross profit decreased 13.5% to $664.1 million. Selling, general and administrative expenses were 428.5 million, up 1.7% year-over-year. The total segment operating margin decreased 630 basis points (bps) to 15.47% in the quarter.

Balance Sheet and Cash Flow

Exiting the second quarter, Rockwell’s cash and cash equivalents were $443 million, down 33.1% from the end of Fiscal 2021 (ended September 30, 2021). Its long-term debt was $3,466 million, roughly stable from Fiscal 2021-end.

The company’s cash flow from operating activities was $90.8 million, down 63.5% year-over-year. Capital spending was at $44.9 million, higher than $25 million in the year-ago quarter. Free cash flow was $45.9 million, down from $223.9 million in the year-ago quarter.

Projections

The Chairman and CEO of Rockwell, Blake Moret, said, “We are navigating significant supply chain volatility with actions to increase component supply, mitigate inflation, and improve our resiliency over the coming quarters.”

For Fiscal 2022, the company predicts sales growth within the 11%-15% range, lower compared with the previous expectation of 16%-19%. Also, the company lowered its organic sales growth projection to 10%-14% from the prior expectation of 14%-17%.

The contributions from inorganic actions are forecast to be 2.5% versus 2% expected previously. Forex woes are predicted at 1.5%.

Adjusted earnings are expected to be $9.20-$9.80 per share, down compared with the previous projection of $10.50-$11.10 per share.

Management Comment

“Strong continuing demand driven by capital investment, the increasing importance of automation and digital transformation, and our unmatched position set the stage for market-beating growth this year and beyond,” said Blake Morret.

Capital Deployment

In the first half of Fiscal Year 2022, Rockwell used $210 million for repaying debts, $260.2 million for dividend payments, and $51.2 million for the repurchase of treasury shares.

Rockwell was left to buy back shares worth $503 million at the end of the second quarter. Also, the company’s board of directors approved a $1 billion worth share repurchase program on May 3.

Stock Rating

A few days ago, Robert Mason of Robert W. Baird reiterated a Buy rating on ROK with a price target of $310 (45.04% upside potential).

Overall, the Street has a Hold consensus rating on Rockwell based on two Buys, four Holds, and two Sells. ROK’s price forecast of $301.25 suggests 40.94% upside potential from current levels.

Shares of Rockwell have lost 18.6% over the past year.

Hedge Fund Activities

Per the TipRanks Hedge Fund Trading Activity tool, the confidence signal on ROK is Negative. This is evident from the hedge funds lowering their exposure to Rockwell’s shares by 22.1 thousand in the last quarter.

Conclusion

Going ahead, the growth in orders and increase in ARR, along with healthy rewards to shareholders, are likely to work in the favor of Rockwell. However, high exposure to headwinds from supply-chain woes and cost inflation could hurt the stock in the near term.

Discover new investment ideas with data you can trust.

Read full Disclaimer & Disclosure

Related News:
Etsy Preview: Do Website Uptrends Indicate a Strong Q1?
Lyft Drives Upbeat Q1 Results; Website Visits Hinted at it
Avis Budget Drives to Strong Q1 Results

Trending

Name
Price
Price Change
S&P 500
Dow Jones
Nasdaq 100
Bitcoin

Popular Articles