Shares in Rockwell Automation (ROK 1.15%) declined by 13.2% this week to Friday, according to data provided by S&P Global Market Intelligence. The move comes after a disappointing set of fiscal first-quarter results. In a familiar refrain among industrial stocks this earnings season, Rockwell's management promised its second half would be better than its first half.
Ending calendar year 2023 on a weak note
As previously discussed, Rockwell is going through an unusual period right now. The supply chain difficulties (which resulted in extended product lead times) in recent years led Rockwell's distributors to build inventory and pull forward orders in order to ensure they had products. In addition, the economic recovery following the pandemic lockdowns led to strong end-market growth.
These conditions led to a ballooning backlog at Rockwell Automation and strong order growth. However, declining lead times (meaning distributors can receive products quicker) and slowing end demand in 2023 slowed order growth, and Rockwell's backlog declined more than expected.
For reference, back in April management said its full-year 2023 orders would be $9 billion and year-end backlog would be $5 billion. In fact, those numbers came in at $8.2 billion and $4.1 billion.
Rockwell's first quarter of 2024
Fast-forward to the company's recent quarter, ended Dec. 31, 2023, and it posted just 1% organic sales growth and adjusted earnings per share (EPS) of $2.04. Meanwhile, management maintained its target of low-single-digit order growth. CEO Blake Moret said, "We continue to expect our full-year orders to grow low single digits versus prior year, with strong sequential growth through the balance of this fiscal year."
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CFO Nick Gangestad prepared investors for "noticeably lower" profit margins in the first half of 2024 compared to "noticeably higher" profit margins for the second half of 2024.
Rockwell will need that to hit its full-year adjusted EPS guidance of $12 to $13.5 after reporting just $2.04 in the first quarter. Unfortunately, the market's reaction to the earnings report suggests it doubts Rockwell will hit the numbers.
