Will Rockwell Automation Inc. (ROK) Miss Earnings in Q4?
Rockwell Automation Inc. (ROK) is set to report fourth-quarter 2014 results on Nov 12, before the opening bell. Last quarter, the company had posted a negative earnings surprise of 4.49%. Let’s see how things are shaping up for this announcement.
Factors at Play
Rockwell Automation’s third-quarter fiscal 2014 adjusted earnings declined 3% year over year to $1.49 per share, negatively impacted by a higher tax rate. The 2% organic growth in the quarter was one of the weakest in the industry as growth remains choppy with strength exhibited by specific verticals and geographic end-markets.
In Canada, sales were down 8% organically with a significant decline in solutions and services business and weakness in resource-based industries. In the EMEA region, organic sales growth of 1% was lower than that reached in the first half of the fiscal year, primarily driven by its solutions business. Sales in Asia-Pacific and Latin America were flat.
On the contrary, organic sales in the United States remained solid in the quarter at 5%. The October Manufacturing Purchasing Managers Index (PMI.V) registered 59%, an increase of 2.4 percentage points from September’s reading of 56.6%. New orders increased sharply and employment grew for the sixteenth consecutive month. The Industrial Production Index (IP) published by the Federal Reserve, which measures the real output of manufacturing, mining, and electric and gas utilities and capacity utilization also continues to improve. Consistent with the positive trend in these key macroeconomic indicators, market conditions in the U.S. is expected to improve in the fourth quarter of fiscal 2014.
Given the company’s year-to-date performance, Rockwell Automation narrowed its fiscal 2014 guidance for organic sales growth to 4 6% from 3 6%. Adjusted EPS has also been lowered to a range of $6.10—$6.25 from $6.00—$6.35.
In the first three quarters of fiscal 2014, Rockwell Automation repurchased 2.9 million shares for approximately $344 million and is well poised to surpass its repurchase target of $440 million for fiscal 2014. As of the third-quarter end, the company has $191.4 million worth of shares remaining under the $1 billion share repurchase authorization, approved in 2012. On Jun 4, 2014, board of directors of Rockwell Automation authorized an additional $1.0 billion share repurchase program. With a manageable debt-to-capitalization ratio of 30% and cash position of $1.2 billion, as of Jun 30, 2014, the company can reinvest in growth opportunities, pursue mergers and acquisitions and return cash to shareholders.
Rockwell Automation will benefit from expansion in the emerging markets and opportunistic acquisitions. In Oct 2014, Rockwell purchased the assets of ESC Services, Inc., a global hazardous energy control provider of lockout-tagout services and solutions. The acquisition will enable Rockwell Automation to increase asset utilization and strengthen enterprise risk management, while adding safety to its growing portfolio of data-driven, cloud-enabled services.
Approximately 8% of Rockwell Automation’s sales originate from the global mining industry. The industry has been 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 the company’s results in the coming quarters
Earnings Whispers?
Our proven model does not conclusively show that Rockwell Automation is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: The Earnings ESP for Rockwell Automation is 0.00% since the Most Accurate estimate is at $1.82, in line with the Zacks Consensus Estimate.
Zacks Rank #3 (Hold): Rockwell Automation has a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat.
Graco Inc. (GGG) has an Earnings ESP of +1.18% and holds a Zacks Rank #3.
Park-Ohio Holdings Corp. (PKOH) has an Earnings ESP of +1.58% and holds a Zacks Rank #3.
Zebra Technologies Corp. (ZBRA) has an Earnings ESP of +3.00% and holds a Zacks Rank #1 (Strong Buy).
Read the Full Research Report on ROK
Read the Full Research Report on GGG
Read the Full Research Report on ZBRA
Read the Full Research Report on PKOH
Zacks Investment Research
