Rockwell Automation to Cut Costs to Fight Coronavirus Woes

Rockwell Automation (NYSE:ROK), Inc. ROK has announced temporary cost containment measures in the wake of weak demand and uncertain market conditions on account of the COVID-19 pandemic.

Management assured that the company has performed well on the sales front in the fiscal second quarter (ended Mar 31, 2020) despite weak performance in China. The Zacks Consensus Estimate for the quarter is at $1.67 billion, suggesting year-over-year growth of 0.5%. The estimate for earnings is currently pegged at $1.92, indicating a decline of 5.9% from the prior-year quarter. The company will release its second quarter fiscal 2020 results on Apr 28, 2020, before the market opens.

However, as the virus has now taken the shape of a pandemic, the company anticipates lower demand in many of its served industries for a period of time. Rockwell Automation is thus taking preemptive actions to align the company’s cost structure with this uncertain environment. The company is trying to minimize workforce reductions. There will be no incentive compensation payouts for fiscal 2020. It is cutting down discretionary spending across the organization, and is introducing other temporary cost actions that will be effective across its locations by the beginning of May.

Rockwell Automation also announced a 25% salary reduction for chairman and CEO, 15% salary reductions for all Senior Vice Presidents, and 7.5% salary reductions for all other non-manufacturing employees globally. The board of directors has also lowered its cash fees by 50%. Manufacturing associates will not be impacted by the temporary pay reductions. They will receive a one-time additional payment in acknowledgement of their work in serving customers during this difficult time. The company match for 401(k) retirement savings plan has been suspended. Rockwell Automation assured that as soon as the markets recover, it will reverse these actions.

Meanwhile, Rockwell Automation continues to take efforts to maintain the well-being of its employees. The company is ensuring that its customers in the life sciences, food and beverage, and personal care industries are able to deliver the products that are critical to so many people and companies worldwide. The company also remains focused on making strategic investments in technology and domain expertise that will be instrumental is driving long-term growth for the company.

Over the past year, shares of Rockwell Automation have fallen 8.3% compared with the industry’s decline of 20.7%.

The coronavirus outbreak has dealt a further blow to the industrial sector, which was already reeling under the protracted U.S.-China trade tensions and waning global demand. The U.S Purchasing Managers’ Index (PMI) released by the Institute for Supply Management had been below 50 (indicating contraction) for five consecutive months till December 2019. Even though the index had climbed to 50.9 in January and 50.1 in February, it fell to 49.1% again in March. The manufacturing sector has clearly been impacted by the coronavirus pandemic and energy market volatility.

Factory closures across the globe, the impacts of the restrictions imposed by different governments, supply-chain disruptions, low demand for goods, availability of employees and workers, logistic costs, among others are likely impact the sector.

There has been a spate of guidance withdrawals by the industry players that includes Caterpillar Inc (NYSE:CAT). CAT, Terex Corporation TEX, Manitowoc and Pentair, citing the uncertainty related to the impact of COVID-19.

Zacks Rank & a Stock to Consider

Rockwell Automation currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the Industrial Products sector is Sharps Compliance Corp SMED , which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Sharps Compliance has an estimated earnings growth rate of 800% for 2020. In a year, the company’s shares have gained 119%.

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