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Rockwell Automation Bracing for Slower Economic Growth

By    |   Friday, 27 July 2012 02:43 PM

Rockwell Automation (ROK) management is bracing the slowdown already apparent in recent U.S. economic growth numbers. Its customers told the company to expect less business as they, too, prepare for slower growth, Rockwell management recently said. Analysts remain upbeat on the firm, however.

Rockwell Automation is a global provider of industrial automation power, control and information solutions for manufacturers. It has two operating segments: architecture and software, and control products and solutions. In 2011, total sales were $6 billion.

Sales to customers in the United States accounted for 49 percent of our total sales in that year. The largest sales outside of the United States on a country-of-destination basis were in Canada, China, Italy, the United Kingdom and Brazil.

Rockwell Chairman and CEO Keith Nosbusch recently told analysts to expect a slowdown for the company. “On the macroeconomic side, whether you look at GDP, industrial production growth or PMI, most of the indicators have weakened from one quarter ago. Customer and channel sentiment is generally less positive than one quarter ago. Most of the signs point to a flattening of cluster demand, at least in the short term,” Nosbusch said in an earnings call.

“And although sales growth was solid in Q3, we started to see more projects getting pushed out. While there are project delays in every quarter, they seemed to pick up in the third quarter. So keeping all of this in mind, along with an increasing headwind of currency, we are reducing our sales outlook for the fiscal year to about $6.2 billion.”

Rockwell Automation has a market cap of $9.25 billion in a sector, electrical equipment, where the average company size is $2.34 billion. Its trailing 12-month P/E ratio is 12.58 and its five-year projected price-to-earnings-growth (PEG) ratio is 0.99, compared to 0.41 for the sector.

Its projected earnings per share growth for the coming year is 9.02 percent, compared to a sector average of 15.59 percent.

Economic slowing

Analysts are positive on ROK, with buy or outperform calls from RBC Capital Markets, Goldman Sachs, and B.P. Bernstein.

“We see risks that economic slowing could further erode ROK sales growth, despite our view of demand for automation equipment,” Standard & Poor’s analysts wrote July 25, reiterating a hold rating on the stock.

Rockwell Automation next reports on Oct. 24.

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Friday, 27 July 2012 02:43 PM
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