Rockwell Automation’s Fiscal 2017 Guidance: A Closer Look

ROK maintains that oil prices have recovered since early 2016 and that most of its business in the heavy industries end market is expected to stabilize.

Sheldon Krieger - Author

Jan. 24 2017, Updated 7:37 a.m. ET


Sales outlook

Rockwell Automation (ROK) maintains that oil prices have recovered since the beginning of 2016 and that most of its business in the heavy industries end market is expected to stabilize. The company has based its sales projections on higher expected global GDP and industrial production growth rates in 2017.

In fiscal 2017, Rockwell expects its sales to rise 2% organically, and the company expects its acquisitions to add another 1.5% to its sales. In terms of geographies, the company has stated that except for Latin America, which could do better, organic growth in other regions is likely to be between 0% and 4%.

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In the heavy industry verticals, the company has stated that it expects comparisons to ease in the oil and gas business by fiscal 1Q17 and in the mining (PICK) business by fiscal 2Q17. A sustained recovery in commodity prices could also have a positive impact on the earnings of peers like Honeywell International (HON), Emerson Electric (EMR), and AMETEK (AME).

Including the assumption of a 50-basis-point headwind on currency, ROK expects its sales to be around $6 billion in fiscal 2017. The company witnessed consecutive sales declines from $6.6 billion in fiscal 2014 to $5.9 billion in fiscal 2016.

Rockwell Automation’s EPS guidance

Rockwell Automation expects its adjusted EPS (earnings per share) to fall to the $5.85–$6.25 range in fiscal 2017 with 100% conversion of adjusted net income to free cash flow. This guidance is based on segment operating margins of ~20% and an effective tax rate of ~24%.

The company has stated that compared to fiscal 2016, it expects to face a $0.25 headwind from incentive compensation-related expenses and $0.05 cents apiece from operating pension expenses, currency, and tax rates in fiscal 2017. Rockwell also expects a $0.15 tailwind in its share count for the year due to ongoing share repurchases. Its core organic sales growth is expected to yield a $0.35 return over fiscal 2016.

In the next and final part of this series, we’ll discuss the key metrics that investors should watch in Rockwell Automation’s upcoming earnings results.


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