Automation technology provider Rockwell Automation issued a profit warning today, saying weak market conditions in the United States and Europe will cause the company to fall short of its previously projected earnings for the year.
The company did not state by how much it expects to miss its previous full-year guidance of $4.25 to $4.45 (€2.71 to €2.84) per share. Rockwell did, however, report that it anticipates third-quarter diluted earnings per share (EPS) in the range of $0.93 to $1.00 (€0.59 to €0.64). In last year’s third quarter, the automation provider registered diluted EPS from continuing operations of $1.07 (€0.68).
For the third fiscal quarter, which runs through the end of this month, Rockwell said it anticipates revenue, excluding currency translation, to be about 7% to 9% higher than that of third quarter 2007; foreign currency translation is expected to add 5%, the company said in a statement.
Rockwell noted that revenue for the month of April was consistent with original expectations, but “for the past several weeks, the company has experienced slower than expected growth in the U.S. and Europe, primarily in its product businesses,” the statement said.
In this year’s first two fiscal quarters, the company reported double-digit revenue increases and substantial earnings gains. In the first quarter, Rockwell reported diluted EPS of $1.04 (€0.66), a 37% year-over-year improvement. In Q2, diluted EPS from continuing operations were up 17% to $0.96 (€0.61), year over year.
The United States and Europe have not been high-growth areas lately, but sales had been holding steady in both regions. However, Rockwell’s sales have been tightly tied to the U.S. automotive market, which is cutting domestic production and closing plants. For example, GM recently announced it will cease production of four truck plants in North America, while Ford will idle its Wayne, MI, plant for five weeks this summer.
Industry observers speculate that Rockwell’s new scaled-back guidance could be a direct reflection of the conditions in the company’s traditional discrete markets.
“If an automotive plant with 15-year-old Rockwell products is no longer in operation, it would have an impact on the MRO [maintenance, repair, and operations] business,” said Craig Resnick, research director at ARC Advisory Group.
But today’s profit warning shouldn’t invite panic, he said, noting that ARC market studies continue to show strong growth rates for the automation companies — such as Rockwell — that have diversified across discrete, process, and hybrid industries.
“By no means do we see things overall as being bad, and we really don’t see any vendor at all across the board struggling,” Resnick said. He characterized today’s announcement from Rockwell as “a data point, not a trend. It may be more of a case of inventory adjustment at distribution.”
“We’ve been expecting this to happen,” said Dick Hill, vice president and general manager, manufacturing advisory services, at ARC Advisory Group. Hill said he thought last year was probably the peak year for strong growth at automation vendors. “That’s not to say that there will be a huge downturn for automation companies, as there are still a lot of projects out there,” he added. “Even though the business is not likely to be as robust as last year or the year before, there are still [manufacturing] projects that make it a strong business environment.”
Rockwell said it expects its third-quarter organic growth in the United States and Europe to be in the low single digits vs. the year-ago period, while Asia Pacific and Latin America will continue to show strong growth. The company said its Control Products & Solutions segment has experienced year-over-year improvements, but the higher-margin Architecture & Software segment is not experiencing the same kind of revenue growth.
Nevertheless, Rockwell Chairman and CEO Keith Nosbusch is hopeful. “I continue to have confidence in the long-term growth prospects for this business,” he said in a statement. “It appears that market growth is slowing in two key regions and we will deal with that reality.”