When things go bad for the manufacturing industry, they get even worse for their material vendors and their equipment suppliers.
Rockwell Automation (ROK) is a leading global provider of solutions for industrial automation, power, control and information systems. Based in Milwaukee, the company employs over 21,000 people and generates over $5 billion in annual sales.
Rockwell specializes in systems that facilitate factory operations. The company has long been viewed as being well-managed and agile, with a record of responding quickly to changing economic conditions. It has also received awards and accolades as a place to work and recently received an award as one of America’s most ethical companies.
In the company’s most recent earnings release, Rockwell reported a 24.4% drop in net earnings for their first fiscal quarter ending December 31, 2008. Earnings were reported at $118 million, or $0.83 per share. Analysts polled by Thomson Reuters had been expecting $0.84.
Company revenues dropped by 11% during the first quarter as compared to the previous year. Lower sales accounted for a drop of 5%, and unfavorable currency exchange rates added 5% to the total revenue drop.
The company noted that earnings were adversely affected by the deterioration of demand at a far swifter pace than had been expected. Manufacturers whose own customer base was reducing orders as consumer demand slowed were shutting down or permanently closing plants. As plants closed, demand for Rockwell Automation parts or services declined.
In issuing guidance of a 12% to 17% decline in fiscal year 2009 sales, Rockwell CEO Keith Nasbusch stated that the company sees “…a significant deceleration in customer demand. What is clear is that we haven’t seen the bottom yet.”
Nor, perhaps, has the price of the company’s stock!
Immediately following the earnings release, ROK plunged nearly 30% to a new 52-week low for the stock. Investors have returned for another look, pushing the stock up by 6% in mid-day trading the day following the release.
Considering the pessimistic tone of the release and the guidance for the balance of the year, prospects for a recovery to higher levels for the stock appear unlikely in the near future.
The company’s balance sheet is strong. With a favorable debt to equity ratio of 0.59%, a current ratio of 2 and interest coverage of 12.9 times, there is no threat to the company’s ability to emerge from the doldrums. A regimen of layoffs and expense cuts will ensure that the company will be positioned to quickly benefit from a future upturn in manufacturing activity.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
