In its fourth quarter, Rockwell Automation Inc. (ROK) results delivered earnings per share (EPS) of 91 cents, in line with the Zacks Consensus Estimate but more than fourfold of 20 cents during the prior-year quarter.

Sales as reported by the company were approximately $1.4 billion, up 26% from the year ago quarter, slightly offset by currency translation of 1%. However, sales as reported by the company were above the Zacks Consensus Estimate of $1.3 billion.

The company reported EPS from continuing operations of $3.05 for the fiscal 2010, above the Zacks Consensus Estimate of $3.04 and $1.53 in the year ago period. Including gains from discontinued operations of 17 cents, the company reported EPS of $3.22, higher than $1.55 in full year 2010.

Sales of $4.8 billion for fiscal 2010 were impacted positively by 2% due to foreign currency translation compared with $4.3 billion in the prior year. Sales were in line with the Zacks Consensus Estimate.

Cost and Margins

Cost of sales in the quarter was $827.7 million, up from $709.1 million in the year-earlier quarter. Selling, general and administrative expenses increased to $354.3 million from $316.8 million in the year-ago quarter.

Segment operating earnings increased to $205.1 million from $79.6 million in the year-ago-quarter, with operating margin increasing 770 basis points year over year to 15.1%.

For fiscal 2010, cost of sales increased to $2.9 billion from $2.8 billion in the prior year. Selling, general and administrative expenses also increased to $1.3 billion from $1.2 billion in the earlier year.

Segment operating earnings amounted to $717.2 million, up from $429.7 million in the year-ago quarter, with operating margin increasing 490 basis points year over year to 14.8%.

Segmental Performance

Architecture & Software: The segment reported sales of $575.9 million in the current quarter, up 36% year over year. However, the revenue was negatively impacted by 2% due to currency translation.

The segment reported operating earnings of $128.4 million, up from $36.9 million in the prior year quarter. Operating margin increased 1,360 basis points year over year to 22.3% attributable to volume leverage.

For fiscal 2010, the segment reported sales of $2.1 billion compared with $1.7 billion in the prior year. For the full year, operating earnings were $475.4 million compared with $223 million in the previous year, increasing the operating margins by 960 basis points to 22.5%.

Control Products & Solutions: The segment’s sales for the current quarter amounted to $781 million, up 20% year over year, including a 1% negative impact due to currency translation.

Segment operating earnings were $76.7 million, up from $42.7 million in the year-ago quarter. Operating margin expanded 320 basis points year over year to 9.8% in the fourth quarter of 2010, driven by volume leverage.

For fiscal year 2010, the segment reported the sales of $2.7 billion compared with $2.6 billion in fiscal 2009. Operating earnings for the full year were $241.8 million compared with $206.7 million in 2009, thereby expanding the margins by 90 basis points year over year to 8.8%.

Financial Position

Cash and cash equivalents for the year ended September 2010 amounted to $813.4 million, compared with $643.8 million in the previous year.

Rockwell’s debt position was $905 million at 2010 year end, flat with 2009 year end. Fiscal 2010 cash from operations amounted to $494 million, down from $526.4 million in fiscal 2009.

For the quarter, free cash flow amounted to $19.2 million, while it was $494 million in fiscal 2010. Return on invested capital was 22.8%. Debt-to-capitalization ratio was 62%, as of September 30, 2010, 66% as of June 30, 2010 and 64%, as of March 31, 2010.

The company also repurchased 0.5 million shares of its common stock for $26.9 million, during fourth- quarter 2010. The average price for each share amounted to $53.8 per share. The company had $501.2 million available as of September 30, 2010 under its $1.0 billion share repurchase authorization.

Outlook

Rockwell is certain that the projects involving large amount of capital are on the way to improve based on which the company has given its fiscal 2011 guidance. For fiscal 2011, the company guided revenue growth in the range of 8% – 12%, excluding 1% from the currency translation. It also projected EPS in the range of $3.80 – $4.20.

The company’s sound balance sheet positions it well to make acquisitions, return shareholders’ value and fund organic growth.

Our Take

Rockwell Automation has a strong global market presence. The company focuses on further expanding its global footprint in emerging markets, as it expects automation growth rates in these markets to be higher than growth rates in developed countries. Growth in emerging markets is the company’s key to meeting its target of deriving 60% of revenues from outside the U.S. by 2013.

As it enters new markets, Rockwell intends to broaden its portfolio of products, services and solutions. Successful diversification into emerging markets and expansion of its product portfolio will drive the company’s top-line growth over the long term. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

 
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