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Tickers in this Article: SI, ABB, EMR, ROK
We reiterate our Neutral recommendation on Rockwell Automation Inc. (ROK). The company missed both the earnings and revenue estimates in the second quarter of fiscal 2012.

Rockwell Automation's earnings of $1.16 a share improved 2% from the prior year quarter's earnings of $1.14, but fell short of the Zacks Consensus Estimate by 11 cents. Total revenue grew 7% year over year to $1.56 billion, missing the Zacks Consensus Estimate of $1.57 billion.

Rockwell Automation has recently hiked the quarterly dividend by 11% to 47 cents per share, adding value to the shareholders. Its commitment towards increasing shareholders' return reflects its free cash flow generating capability and a strong balance sheet.

Further, the company's Board has approved the addition of $1 billion to its share repurchase program. This is in addition to the previous buy-back authorization of $1 billion, of which the company had $51 million remaining as of June 7, 2012.

During the second quarter, Rockwell repurchased 0.5 million shares for $40.6 million. The company expects to repurchase nearly 3 million shares for the balance of the year. A lower share count would turn out to be a tailwind for earnings for the forthcoming quarters.

Rockwell Automation is experiencing strong growth in the Process business which grew 20% year over year in the second quarter. The segment is benefiting from a strong execution in Logix.

The company introduced two new Logix-mid range controller platforms that will help in improving scalability and Ethernet connection. Moreover, it has plans to invest in Logix and expand the served market. Logix sales are expected to grow more than $1 billion in fiscal 2012.

However, macroeconomic conditions might place the company in a difficult situation in fiscal 2012. Moderating global economic growth and uncertainty in the global economic scenario can lead to cautious capital spending in fiscal 2012, limiting Rockwell's near-term revenue visibility.

The company has narrowed its sales guidance to the range of $6.25-$6.45 million from the previous guidance of $6.2-$6.5 million. Based on the projected sales, the company has narrowed the earnings per share target to $5.10-$5.40 from the previous estimate of $5.05-$5.45.

Further, currency will pose a problem for the balance of the year. Currency translation is expected to reduce sales by 2 percentage points in fiscal 2012.

Rockwell Automation faces competition from ABB Ltd. (ABB), Siemens AG (SI) and Emerson Electric Co. (EMR). The stock retains a short-term Zacks #4 Rank (Sell).


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