Rockwell Automation, Inc. ROK reported adjusted earnings of $1.59 per share in second-quarter fiscal 2015, up 18% from $1.35 earned in the prior-year quarter. Results also beat the Zacks Consensus Estimate of $1.42, a positive earnings surprise of 12%. Earnings improved despite a drop in sales and unfavorable currency, thanks to strong productivity and favorable mix.
Including one-time items, the company’s earnings came in at $1.51 per share, rising 18% from $1.28 in the year-ago quarter.
Total revenue was $1,551 million in the quarter, down 3% year over year due to currency headwinds. Revenues also fell short of the Zacks Consensus Estimate of $1,555 million. Organic sales grew 2.7% year over year but was offset by currency headwinds.
Operational Update
Cost of sales dipped 7% year over year to $878 million. Gross profit rose 3% to $673 million from $656 million in the year-ago quarter. Gross margin expanded 240 basis points (bps) year over year to 43.4%.
Selling, general and administrative expenses decreased 2.6% from the prior-year quarter to $382 million. Consolidated segment operating income was $334 million, up 11% from $302 million in the second quarter of 2014. Operating margin expanded 270 bps year over year to 21.6% on the back of higher organic sales, strong productivity, and favorable mix, partially offset by increased spending.
Architecture & Software: Net sales decreased 2% year over year to $674 million in the quarter. Segment operating earnings were $201 million, as against $190 million in the year-ago quarter. Segment operating margin increased 210 basis points to 29.8% from 27.7% a year ago.
Control Products & Solutions: Net sales went down 4% year over year to $877 million. Segment operating earnings improved 19% to $133 million from $112 million in the year-ago quarter. Segment operating margin expanded 300 bps year over year to 15.2%.
Financials
As of Mar 31, 2015, cash and cash equivalents amounted to $1,403 million versus $1191 million as of Sep 30, 2014. As of Dec 31, 2014, long-term debt was $905.6 million, flat with the amount as of Sep 30, 2014.
Cash from operations for the second quarter were at $553 million compared with $406 million in the prior-year quarter. Return on invested capital was 32% as of Mar 31, 2015, compared with 30.6% as of Dec 31, 2013.
During the reported quarter, Rockwell Automation repurchased 1.14 million shares for $127 million. As of Mar 31, 2015, the company had $757 million worth of shares remaining under its $1 billion share repurchase authorization.
Guidance
Rockwell Automation lowered its fiscal 2015 sales forecast to around $6.4 billion from the previous $6.6 billion based on a softer forecast for industrial production growth, a reduced outlook for oil and gas and currency headwind. The company, however, maintained its EPS guidance range of $6.50 to $6.80.
Our View
Rockwell Automation will benefit from growth in automation. Continuous investment in innovative technology and domain expertise will also drive growth. Moreover, the company remains focused on expanding in the emerging markets and making strategic acquisitions.
Additionally, a strong balance sheet position and free cash flow along with dividends and share repurchases are expected to generate long-term shareholder value. However, volatility in foreign exchange rate, weakness in the mining industry, lack of major projects and concern regarding capital spending due to low oil prices remain headwinds.
Milwaukee, WI-based Rockwell Automation is a leading global provider of industrial automation equipment, application-specific integrated software and consulting design services. It also offers industrial automation power, control and information solutions.
Peer Performance
Xylem Inc. XYL reported adjusted earnings per share of 33 cents per share, down 3% year over year but ahead of the Zacks Consensus Estimate of 31 cents.
Currently, Rockwell carries a Zacks Rank #4 (Sell). Stocks to consider in the industrial products industry include RBC Bearings Inc. ROLL and HollySys Automation Technologies, Ltd. HOLI. While RBC Bearings sports a Zacks Rank #1 (Strong Buy), HollySys carries a Zacks Rank #2 (Buy).