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A Closer Look at Rockwell Automation’s Leverage and Liquidity

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Jan. 30 2017, Updated 10:36 a.m. ET

Interest expenses

Rockwell Automation’s (ROK) interest expenses have been consistently on the rise since fiscal 1Q15. For fiscal 1Q17, the company reported interest expenses of $18.7 million compared to $17.4 million reported in fiscal 1Q16.

At the end of fiscal 1Q17, Rockwell Automation’s interest coverage ratio (the number of times interest expenses can be paid with earnings) stood at 14.8x compared to that of its industrial (XLI) peers Emerson Electric’s (EMR) 8.6x, Honeywell International’s (HON) 24.6x, and AMETEK’s (AME) 8.5x.

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On December 31, 2016, Rockwell Automation had $1.9 billion of debt on its books compared to ~$2.0 billion at the end of fiscal 1Q16. Out of the $1.9 billion debt, ~$1.2 billion is long term in nature and the rest is payable over the next year. Notably, a majority of the company’s long-term debt is due to mature after 2020.

Rockwell Automation’s liquidity position

At the end of fiscal 1Q17, Rockwell Automation (ROK) had ~$1.6 billion in the form of cash and cash equivalents on its balance sheet compared to ~$1.5 billion at the end of fiscal 1Q16. The company had about $1.0 billion in borrowing capacity under its unsecured revolving credit facility expiring in March 2020. Rockwell Automation can increase the aggregate amount of this credit facility by up to $350.0 million, subject to the consent of the banks in the credit facility.

Currently, Rockwell Automation has a current ratio (the ability of a company to pay its short-term obligations using its short-term assets) of ~3.5x compared to Emerson Electric’s ~1.2x and Honeywell International’s 1.2x.

In the final part of this series, let’s look at Rockwell Automation’s revised fiscal 2017 guidance.

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