Earnings Results: Rockwell Automation stock tumbles as strong demand loses to supply chain, inflation pressures


Shares of Rockwell Automation Inc. suffered the biggest selloff in more than two years on Tuesday, after the industrial automation and information services company reported disappointing results, as strong demand wasn’t enough to overcome supply chain and inflation pressures, COVID-19 and the Ukraine war.

The stock

tumbled 14.2% in afternoon trading, putting them on track for the lowest close since September 2020. The one-day selloff would be the biggest since it plunged 17.1% on March 18, 2020.

The company reported before the open net income for the fiscal second quarter to March 31 that fell to $53.9 million, or 46 cents a share, from $415.0 million, or $3.54 a share, in the same period a year ago.

Excluding nonrecurring items, such as fair value adjustments related to its PTC investment, adjusted earnings per share of $1.66 was well below the FactSet consensus of $2.25.

Revenue increased 1.8% to $1.81 billion, but missed the FactSet consensus of $1.95 billion.

Cost of sales climbed 13.4% to $1.14 billion, to outpace revenue growth by a wide margin, as gross margin fell to 36.7% from 43.2%.

Chief Executive Blake Moret said on the post-earnings conference call with analysts, according to a FactSet transcript, the results and outlook were based on two themes that stood out.

First, there is “broad-based demand growth across industries, geographies and offering, substantial backlog in all three business segments, low cancellation rates,” as well as detailed component supply forecasts.

Second, “persistent supply chain constraints and associated cost inflation, which put particular pressure on Q2 sales and earnings.” In addition, “unexpected” COVID-related shutdowns in China and Russia’s invasion of Ukraine have led to “supplier pushouts and decommits for electronic component shipments.”

For fiscal 2022, the company cut its adjusted EPS guidance range to $9.20 to $9.80 from $10.50 to $11.10, compared with the FactSet consensus of $10.64. The sales growth outlook was lowered to 11% to 15% from 16% to 19%, while the current FactSet sales consensus of $8.14 billion implies 16.3% growth.

“Our guidance reflects our strong demand and record backlog along with our latest view of supply chain constraints,” the company stated. “However, the global supply chain remains volatile with new pressures from COVID-19 related shutdowns in China and war in Ukraine that are difficult to quantify.”

The company authorized the repurchase of an additional $1 billion worth of its common stock, adding to the $503 million remaining available in the previous repurchase program as of March 31. Rockwell did not repurchase any stock during the quarter through March 31.

The current authorization at about $1.5 billion represents about 6% of Rockwell’s market capitalization of $24.93 billion.

Rockwell’s stock has plunged 38.5% year to date, while the SPDR Industrial Select Sector exchange-traded fund

has lost 9.5% and the S&P 500 index

has shed 12.6%.

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