Rockwell Automation cuts 2009 outlook
Rapid decline in economy bruises quarterly results as factories shut down
By Christopher Hinton, MarketWatch
Last update: 1:14 p.m. EST Feb. 2, 2009NEW YORK
(MarketWatch) -- Rockwell Automation Inc. reported a 25% slump in fiscal first-quarter profit and lowered its 2009 forecast as customers closed down their factories and reduced capital spending amid the deteriorating economy.
"After a very solid October, we experienced a severe decline in customer demand during the second half of the quarter," said Chairman and Chief Executive Keith Nosbusch. "Deteriorating economic, financial and credit market conditions affected all regions and most industries, aggravated by an unusual number of customer plant shutdowns."
Shares of Rockwell Automation fell 10% to $23.40. The stock plunged about 20% in premarket trading to a five-year low, and is off more than 50% since mid-September when the recession took hold and financial markets scaled back lending.
For the recent quarter, the Milwaukee maker of manufacturing power and control systems said it earned $118 million, or 83 cents a share, compared to $157 million, or $1.04 a share, in the same period a year ago.
ROK) fell 11% to $1.19 billion from $1.33 billion, with an unfavorable currency exchange contributing six percentage points to the decline.
Income from continuing operations was 81 cents a share. Analysts polled by FactSet Research estimated, on average, earnings per share of 83 cents and sales of $1.26 billion.
For fiscal 2009, Rockwell lowered its earnings outlook downward to a range of $1.55 to $2.25 a share, from its prior view of $3.10 to $3.60 a share.
CEO calls this recession 'different'
Rockwell Automation said the U.S. manufacturing managers' index, or PMI, fell to its lowest point since the mid-1980s, down to 32.4 in December. The benchmark indicates near-term manufacturing activity, with 50 or above generally representing economic expansion.
Manufacturers rolled back production and reduced their capital expenditures, with Rockwell's top customers reducing their spending by double-digit percentage points, said CEO Nosbusch on a post-earnings call.
"We have not seen the bottom yet," Nosbusch said on the call. Though in other quarters, hope was raised after the Institute for Supply Management's manufacturing index posted a small gain for January. Read Economic Report.
Compared to past recessions, the current economic downturn is different in that it started in the financial markets and made its way to consumers and then manufacturers, Nosbusch said. More recent recessions hardly touched consumers, he said.
"I think that's probably the greatest difference and in that regard," Nosbusch said. "This is probably closer to what was occurring in the early 80s as opposed to either the 90s or early 2000. And I would also say one of the big differences this time is this is probably the first time since World War II that we have had a synchronized global recession."
Recessions in 2001 and the early 1990s didn't affect many non-Western countries, and Germany actually saw its economy grow during the downturn in the U.S. nearly 20 years ago.
Rockwell Automation derives about 50% of its sales from outside the U.S.
CEO Nosbusch emphasized that despite the tough environment, the company has "ample cash and credit" to weather a difficult year ahead while also maintaining its 96-cents-a-share annual cash dividend.
That should provide some relief to investors who have seen other businesses slash their dividend to raise cash and maintain investment-grade rankings with the credit-rating agencies.
As of Dec. 31, Rockwell Automation said it had $554 million in cash and cash equivalents on its balance sheet. The amount of available credit wasn't noted.
During the fiscal first quarter, the company said its architecture and software business, which produced technology for connecting factory floors with an enterprise unit, saw operating earnings dive 26% to $148.5 million as sales declined 11% to $506.4 million.
In control products and solutions, which installs automation technology and provides after-market support, earnings fell 38% to $68 million on sales that declined 9% to $682.8 million.
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