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Rockwell Automation Beats Wall Street on Q4 Earnings

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Today, Rockwell Automation (ROK) announced its results for the fourth quarter of fiscal 2019, as well as for fiscal 2019 (ended September 2019). Although Rockwell Automation’s revenues remained steady at $1.3 billion during the quarter, its organic sales grew by 1.4% year-over-year. These revenues surprised analysts, who expected $1.65 billion in revenues for the quarter. For fiscal 2019, Rockwell Automation reported $6.7 billion in revenues, surpassing analysts’ expectations by 1.1%.

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Rockwell Automation beats earnings estimates, ROK stock jumps

The company’s earnings also beat estimates. Rockwell Automation reported earnings per share (or EPS) of $2.01 in Q4 and $8.67 in fiscal 2019. The company’s Q4 EPS beat estimates by 4.5%, and its fiscal 2019 EPS beat estimates by 0.9%.

After opening higher today, Rockwell Automation stock was selling briskly with a 13.3% intraday gain at 11:14 AM EST.

Trade war weighs on Rockwell Automation

Notably, the trade war left its footprints all over Rockwell Automation’s Q4 and fiscal 2019 results. Its North America fourth-quarter revenues fell 1.2% due to weakness in the semiconductor and power generation industries. North America accounted for almost 60% of the company’s fiscal 2019 revenues.

The company noted that its revenues from China were down by mid-single digits during the fourth quarter. However, revenues from its global emerging markets rose around 5%.

Strong performance in EMEA (Europe, Middle East, and Africa) and Latin America offset the weakness in North America and China. Its EMEA revenues grew 4.2% in the fourth quarter, while its Latin America Q4 revenues grew by a handsome 17.2%.

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Segmental performance

Rockwell Automation’s Architecture and Software segment saw its revenues expand by 0.9% during the fourth quarter. The segment’s revenues rose 2.3% organically. However, its operating margins came in at 26.2%, a drop of 190 basis points. The company pointed to lower volumes and restructuring costs for the drop in these margins.

On the other hand, ROK’s Control Products and Solutions segment saw a marginal drop in reported revenues and a slight uptick in organic sales. The segment’s operating margins rose 40 basis points to 15.2%.

Rockwell Automation’s fiscal 2020 guidance

Rockwell Automation is upbeat about fiscal 2020, with expected revenues of $7 billion. The company expects this revenue growth to be driven by inorganic sources. The company also expects its operating margins to improve in 2020.

According to its revised segmentation, the company expects its Discrete segment’s revenues to fall by low single digits due to semiconductor weakness. The company expects its automotive revenues to stay flat in fiscal 2020. Its Hybrid segment is expected to see a marginal rise in revenues in fiscal 2020 due to growth in Lifesciences and its Food & Beverage segment. Lastly, the Process segment’s revenues are expected to be flat.

What are analysts saying?

Interestingly, most Wall Street analysts are either cautious or bearish on Rockwell Automation stock. Of the 24 analysts surveyed by Reuters, only four recommended a “buy,” 15 recommended a “hold,” and the remaining five recommended a “sell.”

The median target price of $166.50 on ROK stock is lower than yesterday’s close. Today’s surge means the stock is almost 20% overvalued in Wall Street’s eyes. Will Wall Street update its view on Rockwell Automation, or is it really a time to sell? We’ll keep an eye on these developments.

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