The worldwide industrial recovery is good news for Rockwell Automation (ROK). It makes industrial process control equipment to improve efficiency in factories. Rockwell’s products include motor starters, signaling devices, relays, sensors, and motors. These products control and monitor activity ranging from beverage production to heavy-equipment manufacturing.
Rockwell stock constitutes a compelling investment opportunity. Its main competitors are Siemens (SI), Emerson (EMR), and ABB (ABB).
Rockwell’s profit jumped 21 percent in the quarter ended March 31, to $166.4 million from $137 million a year earlier, beating expectations. Revenue climbed 26 percent to $1.46 billion, also topping analyst predictions. The dollar’s weakness contributed 2 percentage points of that revenue growth.
Rockwell is reaping the rewards of renewed capital spending by industrial companies that were in hibernation during the recession. Now that they are up and at it again, these companies are trying to find ways to cut their operating costs.
"Our strong revenue performance in the first half (of the fiscal year through March 31), continued strength in the industrial sector and an increased tailwind from currency are positives as we enter the third quarter,” Rockwell CEO Keith Nosbusch said in a statement accompanying the company’s latest earnings report.
Japan’s disasters and turmoil in the Mideast and Africa create some uncertainty, he acknowledges.
Full speed ahead
Standard & Poor’s analyst Matthew Christy also sees continued success for Rockwell ahead.
“Recent gains in (U.S.) capacity utilization and industrial production … indicate increased spending on automation products,” he writes. “In addition, we believe that pent-up demand following the 2008-2009 recession is just starting to be realized, which we think will benefit ROK's future results.”
Christy predicts a 20 percent increase for revenue in the year ending Sept. 30. That stems from expectations the global economic recovery will continue.
“Revenue growth will be primarily driven by maintenance, repair, and product sales, along with pent-up demand,” he writes.
Profit margins should rise further, thanks to the company’s past restructuring efforts and improved volume leverage, despite higher investment spending and input costs, Christy says.
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