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Learning From Rockwell’s Q3

Rockwell Automation is performing well, but growth is hard to come by. So, where’s the opportunity? Looks like Controls are selling well in Brazil, Mexico, and Canada. Are you getting any of these markets?

CEO Keith Nosbusch is “very pleased” with Rockwell Automation’s recent performance… under the circumstances. He said that ROK’s Q3 (ending June 30) was so strong that Rockwell almost certainly won’t underperform last year’s numbers.

Or, as Mr. Nosbusch put it, “We now project… full-year organic growth of approximately 1 percent.”

He may have arrived at that 1 percent projection (on July 30,) because, “Through nine months, organic sales are up 1 percent…”

Works for me.

I suppose, basically, if everything runs the same for the next three months, we’ll probably finish this year about the same as last year. (But, at least for appearance’s sake, you can bet they’ll fight to turn in numbers that beat 2012.)

ROK’s First Three Quarters

In summary, here’s how the last three quarters were reported. (Keep in mind, smart as these guys are, they still think the fiscal year ends on September 30. Q1 for ROK ends on December 31.)

In Q1, sales were up a percent, but earnings per share declined.

In Q2, sales went negative, but EPS went up.

In Q3, (which closed June 30) sales AND earnings finally rose together. Q3 Sales were up 4%, year over year. Adjusted EPS was up 12%, year over year.

And that’s how we made it all the way to one percent growth in 2013.

Now, consider this…

Keeping Investors Happy

On Apr. 24, 2013, after his Q2 results came in, Mr. Nosbusch actually lowered the 2013 sales outlook, based on ROK’s first half performance. That, and being edgy about “sluggish market conditions.” He said 2013 might not go as well as he had hoped.

Even so, three weeks earlier, on April 3, ROK announced an 11 percent dividend increase. Interesting.

Mr. Nosbusch pointed out that, “We have increased our dividend by almost 80 percent over the last four years. We are confident in the sustainability of our cash flows…” and so on.

My Take On The Company

Personally, I’m hearing the message that the company is profitable. The market is unstable and sluggish. And investors should stay on board for a dividend that is growing faster than the company.

To be honest, the exciting 80 percent dividend growth isn’t all that outrageous.

The ROK dividend is only 2 percent.

Sluggish Overall

What can we learn from Mr. Nosbusch about our industry?

Rockwell Automation comes at the subject from two sides: One is Architecture and Software. The other is Control Products and Solutions.

A&S is 70% the size of the Controls Products side, but A&S has twice the profit margin.

So, what does that mean to us?

Not much.

The Controls Products side grew 6 percent while the A&S side grew 1 percent.

That would suggest that you or your employer may have ordered more controls recently, but there’s no real trend or momentum, here.

The bigger indicator is geographic.

Growth Areas

The action remains in Canada, still growing at 10 percent. And now, Latin America, coming on at 23%, has actually surpassed Canada. Strongest in Latin America are Brazil and Mexico.

The U.S. – Rockwell’s largest market – is slogging along at about 4 percent growth.

The oddly grouped Europe, Middle East, and Africa is ROK’s second largest market. It combines for 3 percent growth.

And Asia-Pacific tanked badly, shrinking 8 percent.

Recruiter’s View

Rockwell tells us that the growth is in Brazil, Mexico, and Canada.

We are warned that their two largest markets have slowed to a crawl, and the Asia-Pacific promise isn’t acting very promising.

Although every locale has its problems and potential solutions, for immediate opportunity, I would point to the stronger industry groups on this side of the globe.

Rockwell is telling us where to look.

— TD

Posted in Benchmark Companies, International, Pick.


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