Rockwell Automation (ROK)

Industrials automation company Rockwell (NYSE:ROK) announced better-than-expected revenue in Q3 CY2025, with sales up 13.8% year on year to $2.32 billion. Its non-GAAP profit of $3.34 per share was 13.6% above analysts’ consensus estimates.

Company Overview

One of the first companies to address industrial automation, Rockwell Automation (NYSE:ROK) sells products that help customers extract more efficiency from their machinery.

Industrial Internet of Things (IoT) companies are buoyed by the secular trend of a more connected world. They often specialize in nascent areas such as hardware and services for factory automation, fleet tracking, or smart home technologies. Those who play their cards right can generate recurring subscription revenues by providing cloud-based software services, boosting their margins. On the other hand, if the technologies these companies have invested in don’t pan out, they may have to make costly pivots.

Competitors of Rockwell Automation include Siemens (ETR:SIE), Schneider Electric (EPA:SU), and ABB (NYSE:ABB).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Rockwell Automation’s sales grew at a tepid 5.7% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Rockwell Automation’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 4% annually.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Rockwell Automation’s organic revenue averaged 3.9% year-on-year declines. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Rockwell Automation reported year-on-year revenue growth of 13.8%, and its $2.32 billion of revenue exceeded Wall Street’s estimates by 4.9%.

Looking ahead, sell-side analysts expect revenue to grow 5.4% over the next 12 months. While this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.

Rockwell Automation’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 40.7% gross margin over the last five years. That means Rockwell Automation only paid its suppliers $59.26 for every $100 in revenue.

Rockwell Automation produced a 48.4% gross profit margin in Q3, marking a 10.1 percentage point increase from 38.3% in the same quarter last year. Rockwell Automation’s full-year margin has also been trending up over the past 12 months, increasing by 3.3 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Rockwell Automation’s operating margin has risen over the last 12 months and averaged 17.1% over the last five years. On top of that, its profitability was elite for an industrials business thanks to its efficient cost structure and economies of scale. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Rockwell Automation’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Rockwell Automation generated an operating margin profit margin of 22.5%, up 8.5 percentage points year on year. The increase was driven by stronger leverage on its cost of sales (not higher efficiency with its operating expenses), as indicated by its larger rise in gross margin.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Rockwell Automation’s unimpressive 6.3% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Rockwell Automation, its two-year annual EPS declines of 7.2% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q3, Rockwell Automation reported adjusted EPS of $3.34, up from $2.47 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Rockwell Automation’s full-year EPS of $10.44 to grow 10.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Rockwell Automation has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 12.5% over the last five years, quite impressive for an industrials business.

Rockwell Automation’s free cash flow clocked in at $405 million in Q3, equivalent to a 17.5% margin. This cash profitability was in line with the comparable period last year and above its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Rockwell Automation hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 21.1%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Rockwell Automation’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Rockwell Automation reported $468 million of cash and $3.55 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.57 billion of EBITDA over the last 12 months, we view Rockwell Automation’s 2.0× net-debt-to-EBITDA ratio as safe. We also see its $143 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Rockwell Automation blew past analysts’ organic revenue expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its EBITDA missed. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 5% to $381 immediately following the results.

Updated: December 4, 2025 at 9:08 PM EST

When considering an investment in Rockwell Automation, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Rockwell Automation isn’t a terrible business, but it isn’t one of our picks. To begin with, its revenue growth was uninspiring over the last five years, and analysts don’t see anything changing over the next 12 months. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its organic revenue declined.

Rockwell Automation’s P/E ratio based on the next 12 months is 33.3x. At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $392 on the company (compared to the current share price of $406.50), implying they don’t see much short-term potential in Rockwell Automation.