Rockwell Automation (ROK) Q3 Earnings: What's In Store?

Rockwell Automation, Inc. (NYSE:ROK) is geared up to report third-quarter fiscal 2016 results on Jul 27, before the market opens. The Zacks Consensus Estimate for the quarter is pegged at $1.46, reflecting 8.37% year over year dip.

Earnings Whispers

Our proven model does not conclusively show that Rockwell Automation will be able to pull a surprise this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for an earnings beat. That is not the case here as you will see below.

Zacks ESP: Rockwell Automation’s Earnings ESP stands at -1.37%. This is because the company’s Most Accurate estimate is $1.44, whereas the Zacks Consensus Estimate is pegged at $1.46.

Zacks Rank: Rockwell Automation currently has a Zacks Rank #3 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of Rockwell Automation’s Zacks Rank #3 combined with a negative earnings ESP makes surprise prediction difficult.

Surprise History

In the last reported quarter, the company posted a positive earnings surprise of 3.79%. Notably, Rockwell Automation has delivered a positive earnings surprise of 1.61% on an average over the last four quarters.

Factors at Play

The company cautioned that the recent industrial production forecast underscored lower-than-estimated economic growth in 2016, but continues to expect modest improvement in the second half of the year. It stated that its performance in the rest of the year will improve sequentially, though a year-over-year growth is not anticipated.

Globally, heavy industries will remain weak, with sporadic growth in the consumer and automotive verticals. The U.S. and China will continue to be the weakest geographies.

Spending in the architecture and software segment has been increased as the company focuses on new product development. Given that the company expects sequential growth in the second half of the year in the segment, it anticipates fiscal third-quarter 2016 to witness the lowest margin this year at the segment.

Despite the weakening oil and gas, mining markets, Rockwell Automation remains optimistic about the consumer, life sciences and auto verticals. These will continue to grow which bodes well for the company. Moreover, its perked up restructuring activities should begin to pay off during this quarter as well as the next.

Stocks to Consider

Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Allegion Plc (NYSE:ALLE) has an Earnings ESP of +2.25% and a Zacks Rank #2.

Ball Corp. (NYSE:BLL) has an Earnings ESP of +1.01% and a Zacks Rank #3.

Ingersoll-Rand Plc (NYSE:IR) has an Earnings ESP of +0.77% and a Zacks Rank #2.