On the heels of a profit warning issued last month, Rockwell Automation today reported a double-digit increase in revenue for its 2008 fiscal third quarter, while income from continuing operations fell year over year.
For the quarter, ended June 30, 2008, Rockwell reported revenue of $1.47 billion (€0.93 billion), a 15% improvement on $1.28 billion (€0.81 billion) in sales in the third quarter of 2007. Income from continuing operations, however, came in at $152.6 million (€97 million), or $1.03 (€0.65) per share, a decline from the prior year’s $167.5 million (€106.5 billion), or $1.07 (€0.68) per share, although an improvement on the $0.93 to $1.00 (€0.59 to €0.635) that the automation provider predicted in June’s profit warning.
The company’s top-line growth benefited from foreign currency translation, which contributed 5 percentage points, and acquisitions, which contributed 4 percentage points. Rockwell has also been able to leverage strong growth from infrastructure-based projects in Asia Pacific and Latin America, which delivered third-quarter organic growth of 26% and 19%, respectively. In addition, the oil and gas vertical grew in excess of 30% in the period, the company said.
The diversification of Rockwell’s product portfolio into plant-wide control, its success at adding process industry expertise, and its foothold in emerging markets have been stabilizing factors for Rockwell as it — along with the rest of the industry — battles macro-economic trends that are hindering U.S. and European markets.
“We are operating in a bifurcated world economy,” said Rockwell Chairman and CEO Keith Nosbusch during today’s conference call with financial analysts. “Buoyant growth in emerging markets coincides with sluggish growth in developed countries.” Although Nosbusch said he was pleased with the company’s organic growth in the quarter, he also said there is more work to be done to offset current market conditions.
During the quarter, the company encountered shifting buying patterns, officials said, pointing to project delays within the European consumer goods industry and a similar spending pullback in the U.S. pharmaceutical and life sciences industries. In addition, the shifting strategy among U.S. automakers away from SUV and truck production has, in some cases, resulted in plant closings, halting project and even maintenance repair and overhaul (MRO) spending, Nosbusch said.
“It’s a challenge … We’ve learned how to anticipate some of the projects and related activities, but at the end of the day there is still an element of our business that, given the short-cycle nature of it, is at risk for quick changes in buyer behavior from the customer base,” Nosbusch told analysts.
Rockwell is taking immediate short-term measures to cut costs in the form of “a clampdown on headcount, reduction in travel, and other measures to contain spending in the fourth quarter,” said Rockwell CFO Ted Crandall.
Unlike rival Siemens, however, Rockwell is not planning layoffs, officials said.
“At this point, we are not reducing headcount, but we are limiting any growth in headcount and hiring only selectively in key growth areas,” Crandall told Managing Automation. “The other dimension of this exercise we are going through is [to review] if we need to rebalance spending. The growth opportunities in front of us in the next six months may be different from the growth opportunities we were reviewing six to nine months ago.”
In the long term, however, “We are trying to make sure that we are looking at all of the areas that would become available to us to change our cost structure if we had a prolonged downturn or a significant change in the current growth rate,” Nosbusch said in an interview with Managing Automation.
“[Crandall] talked about what we are doing in the short term, which is how we can manage cost,” Nosbusch continued. “But if we are not going to see growth or if we are going to see a decline, we have to address our cost structure. We want to make sure we’ll be ready to do that if that’s what it came to. We are not predicting anything at this point,” he said, “but given what is going on with the macro-economic environment, prudent businesspeople have to be looking at the options they [have] to protect the profitability of the business.”
A bright spot in the third quarter was Rockwell’s Logix control platform, which grew only 7% in Q2 and regained double-digit growth, at 10%, in the third quarter. Logix is growing faster than Rockwell’s solutions business in emerging areas such as Asia Pacific, where companies are spending a lot on infrastructure to build out cement plants, power generation plants, and steel mills, for example.
Once those facilities are up and running, there will be more opportunity for Rockwell’s Architecture & Software (A&S) business, officials predicted. For the third quarter, A&S sales were $625.7 million (€397.5 million), an increase of 7% from $582.5 million (€370 million) in the third quarter of 2007.
Control Products & Solutions (CP&S) brought in $849.3 million (€539.6 million) in the quarter, an increase of 22% over sales of $698.1 million (€443.5 million) a year earlier.
Rockwell has also reined in its EPS guidance for the full year. The company previously predicted full-year diluted EPS in the range of $4.25 to $4.45 (€2.70 to €2.83). That has been adjusted to $4.00 to $4.10 (€2.54 to €2.60).