Rockwell Earnings: Muted 2024 Guide Offsets Strong Sales Growth

We maintain our $310 fair value estimate following wide-moat Rockwell’s ROK fiscal fourth-quarter and full-year results. Sales rose a resounding 20.5% year on year or 18% on an organic basis. Rockwell’s sales growth was broad-based, but organic sales were exceptional in Rockwell’s software and control business, rising over 23% year on year. This segment sells Rockwell’s programmable logic controllers and digital twin software, among other solutions.

We think Rockwell has been driving innovation in this business. Tools like predictive maintenance support its automation equipment. Rockwell sells these solutions under its “FactoryTalk” banner. Both Rockwell’s organic and inorganic investments have been driving share gains. Given management highlighting “new customer value,” we suspect it’s also successfully taking price. In fact, about 6 percentage points of Rockwell’s growth came from price.

Intelligent devices also grew considerably. That segment grew 18% organically, with strong sales growth across all regions. Independent cart, which is a modular product offering, helps throughput and mitigates bottlenecks. We like the flexibility this product offers customers as it goes to market, and judging by results, so do they. In fact, this product grew sales 50% year over year.

Despite a lot of positives in the fourth quarter print, however, Rockwell’s stock price declined about 3% on the trading day. It’s true that operating margins contracted about 100 basis points to 22.3% related to restructuring. Further, the guide came a bit below expectations, though we suspect there’s some transient inventory destocking from its distributor customer base. Nonetheless, despite destocking and margins trailing our prior expectations, we suspect the stock’s decline was due to a different factor. Namely, Rockwell took an impairment charge of $157.5 million related to its Sensia digital oilfield venture with Schlumberger.