Rockwell Automation's Unusual Quarter

Rockwell Automation's last quarter saw strength where others saw weakness and vice versa. What does this mean for it and competitors like General Electric or Siemens?

Apr 4, 2014 at 3:41PM

Most industrial companies tend to say a similar thing with regard to end market conditions in their specific industry or geographic exposure. In other words, when a bellwether like General Electric Company (NYSE:GE) gives word on its various industry exposures, the commentary from most of its peers like Siemens (NASDAQOTH:SIEGY) tends to follow in step. Interestingly, this wasn't the case with Rockwell Automation Inc. (NYSE:ROK) whose first-quarter results and guidance seemed somewhat out of sync with the market. What is going on? Furthermore, what does it mean for Rockwell Automation?

Summarizing Rockwell Automation's first quarter
The key takeaways from its recent earnings report and commentary:

  • Rockwell's management declared that it had "not seen order pattern aberrations" due to the severe winter weather, contrary to what many other industrial companies have reported.
  • Emerging markets like China and India were very strong, with sales up 21% and 13% respectively, when many other companies saw weaker performance from these two countries.
  • Rockwell outperformed with its oil and gas and food and beverage segments in the U.S., where others had seen weakness.
  • Automotive performance was flat, in contrast to companies exposed to the auto sector like Johnson Controls, who have seen stronger conditions.

In fact, the only end market (regional or industry vertical) that strongly correlated with what other industrial companies like General Electric Company, Joy Global, and Caterpillar reported recently, was its weak metal and mining operations. For example, when questioned on the conference call about why its book-to-bill ratio was one to one (declared as being a little lower than normal for the quarter), management replied that the slowdown in mining was the main culprit.

Why was Rockwell Automation so contrarian?
Essentially, it was a confluence of events and specific market positioning that caused such unusual results and guidance. In order to explain, I will run down the reasons in-line with the bullet points listed above.

First, weather had far less of an affect than industrial companies exposed to construction activity had felt. In fact, one of the indicators that the company uses to gauge conditions for investment in automation remained strong over the period; specifically, the industrial production index, or INDPRO, published by the Federal Reserve.

Source: Federal Reserve

Second, it's fair to say that its emerging market performance was somewhat of a misnomer. For example, China and India were up against "easy comparisons" and despite the 21% rise, management still predicts that its China sales will only rise in the "high single digit" range in 2014. Moreover, management disclosed that India's underlying orders were not as strong as its revenue growth; indicating that growth would slow.

The strength in oil and gas is somewhat puzzling, but it may be down to Rockwell's strong exposure to offshore drilling; a market doing rather better than U.S. onshore. Moreover, General Electric Company previously spoke of strength in national oil company's spending (which tend to be more in emerging markets), while the integrated majors (usually Western companies) were seen as the capex laggards.

As for the auto market, Rockwell seems to be relatively poorly exposed in 2014. The global automobile market seems to be categorized by car manufacturers favoring local automation control providers. Indeed, Rockwell's management implied that its rival, Siemens, would be favored to win new business from German manufacturers like BMW and Audi. Moreover, the Japanese car companies might favor its Japanese rivals. Essentially, the issue in Rockwell's core market is that growth has been so strong in recent years that it's likely to slow.

Is Rockwell Automation a good value?
All told, Rockwell's first quarter was rather unusual within the industrial sector, and the company's guidance of full-year-sales growth of 3%-6% implies a slowing of growth through the year. The midpoint of its full-year EPS guidance of $6.00-$6.35 puts it on a forward P/E ratio of around of around 20 times earnings. Frankly, the stock looks fairly valued, unless growth in the industrial sector surprises on the upside in 2014.

3 stock picks to ride America's energy bonanza
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Lee Samaha has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers