Rockwell Automation (ROK) Up 8.1% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Rockwell Automation, Inc. ROK. Shares have added about 8.1% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is ROK due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Rockwell Automation Beats on Q2 Earnings, Hikes Outlook    

Rockwell Automation delivered adjusted earnings per share of $1.89 in second-quarter fiscal 2018 (ended Dec 31, 2017), up 22% from $1.55 recorded in the prior-year quarter. The year-over-year performance was driven by elevated sales. Earnings also surpassed the Zacks Consensus Estimate of $1.80.

Including one-time items, the company reported earnings of $1.77 per share compared with earnings of $1.45 per share reported in the year-ago quarter.

Total revenues came in at $1,651 billion in the quarter, up 6.2% year over year. However, revenues missed the Zacks Consensus Estimate of $1,654 million. Organic sales rose 3.5%. Foreign currency translations bolstered sales by 3.9%, while divestitures in the prior year reduced sales by 1.2%.
 
Operational Update

Cost of sales increased 6% year over year to $950 million. Gross profit went up 7% to $701 million from $657 million reported in the year-ago quarter. Selling, general and administrative expenses dipped 5% to $389 million.

Consolidated segment operating income was $345 million, up 17% from $296 million recorded in the prior-year quarter. Segment operating margin was 20.9% in the reported quarter, a 190-basis-point expansion from the year-earlier quarter due to higher sales.

Segment Results

Architecture & Software: Net sales rose 7% year over year to $768 million in the second quarter. Organic sales were up 2.5% and currency translation bolstered sales by 4.4%. Segment operating earnings were $218 million compared with $191 million recorded in the prior year. Segment operating margin was 28% compared with 27% witnessed in the year-ago quarter.
 
Control Products & Solutions: Net sales climbed 6% to $883 million in the reported quarter. Organic sales increased 4.4%, currency translation improved sales by 3.6%, and the prior-year divestiture reduced sales by 2.3%. Segment operating earnings increased 20% to $127 million from $108 million in the year-ago quarter. Segment operating margin came in at 14% compared with 13% recorded in the prior-year quarter.
 
Financials
 
As of Mar 31, 2018, cash and cash equivalents were $1,434 million, up from $1,411 million as of Sep 30, 2017. As of Mar 31, 2018, total debt was $1,538 million, down from $1,844 million as of Sep 30, 2017.
 
Cash flow from operations came in at $594 million in the reported quarter compared with $612 million recorded in the year-ago quarter. Return on invested capital was 43.6% as of Mar 31, 2018, up from 36.4% as of Mar 31, 2017.
 
During the fiscal second quarter, Rockwell Automation repurchased 2.5 million shares for $465 million. As of Mar 31, 2018, $934.8 million remained available for repurchase.
 
The company’s board of directors declared a quarterly dividend of 92 cents per share on its common stock, payable on Jun 11 to shareowners of record at the close of business on May 14, 2018.
 
Guidance
 
Backed by favorable global manufacturing environment, positive macroeconomic indicators and strong first-half results, Rockwell Automation raised the adjusted EPS guidance to $7.70-$8.00 from $7.60-$7.90. However, the company maintained reported sales growth outlook at 4.5-7.5% and organic sales growth guidance at 3.5-6.5%.
 
Rockwell Automation expects to benefit from expanded product offering and strong customer relationships. Its strategic focus on the Connected Enterprise and substantial investments in technology will fuel growth. The company is well positioned to benefit from attractive opportunities in the industrial automation and information market.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There have been three revisions higher for the current quarter compared to three lower.

Rockwell Automation, Inc. Price and Consensus

Rockwell Automation, Inc. Price and Consensus | Rockwell Automation, Inc. Quote

VGM Scores

At this time, ROK has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth and momentum investors than value investors.

Outlook

ROK has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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