This Tech Play Is Behind the Rebirth of American Steel

Posted On March 19, 2018 1:52 pm

Making Steel Even Stronger

The sophisticated set of software, hardware, and sensors developed and marketed by Rockwell Automation Inc. (NYSE: ROKis helping several industrial sectors work smarter.

But it’s really Rockwell’s work with steelmakers that showcases just how vital a partner this firm has become.

Over the last several years, Rockwell has focused on fine-tuning its manufacturing execution system (MES), which enables steelmakers to precisely monitor every aspect of the production process.

Rockwell sees a target-rich environment. That’s because metal prices have remained volatile in recent years. Many steel producers have not invested in new tech systems in more than a decade.

Like we’ve been saying, domestic steel firms will clearly benefit from the new tariffs. But that alone won’t be enough to make them more competitive. They also need Rockwell’s tools to drive down costs.

MES tech allows metals firms to pull data from nearly any aspect of their operations, from smelting, casting, and stamping processes to total throughput and downtime events. Clients can view data in both real time and against a host of historical markers.

And it’s not just the metal makers who benefit. Their own clients stand to gain from Rockwell’s many digital applications.

Just look at what’s happening with the coming use of aluminum in the U.S auto market. Ducker Worldwide predicts that more than 75% of pickup trucks and 20 percent of SUVs and large sedans produced in North America will be aluminum-bodied by 2025.

So auto firms are clear winners here, too, but Rockwell hardly limits itself to metals and autos. It also sells to the semiconductor, oil and gas, shipping, chemical, and life sciences sectors.

Take a look at some of the projects it’s working on.

The “Connected Enterprise”

Rockwell is at the forefront of a new type of “smart factories.”

The idea here is to use digital tools, including software packages, sensors, and advanced processors, to make production equipment more intelligent.

And it will all eventually link up with the Internet of Everything, in which some 50 billion devices around the world will be connected to each other over the next several years. The IoE’s impact on the global economy, according to McKinsey, will be as high as $6.2 trillion by 2025.

Rockwell refers to the intersection of these two big trends in manufacturing as “connected enterprise” technology.

With connected enterprise tech, headquarters, remote factories, distribution centers, the supply chain, and a firm’s clients can all share information like never before.

Rockwell continues to roll out more tools that will accelerate this shift, helping the firm to better target what it believes to be a $90 billion total market opening.

And its own shareholders are benefiting in ways beyond adding new sales. That’s because Rockwell has implemented MES and other smart-factory tech in its own operations.

Doing so not only is a great proving ground for potential sales, but it’s also helping the firm’s bottom line.

Rockwell has lowered its total cost of operations by reducing inventory days from 120 to 82. It also reduced the cost of capital by 30%.

All the while, it’s improved productivity by between 4% and 5% a year. And as it continues rolling out MES platforms to its own factories, its profit margins will only get better from here.

The Future Is Now

Based in Milwaukee, Wis., Rockwell Automation has built an impressive 115-year track record, and its 22,000 employees in 80 countries are helping hundreds of firms work smarter.

No single industry accounts for more than 10% of sales. I like that.

About half of revenue comes from a dozen different “heavy” industries, such as mining, chip-making, energy, and chemicals. The rest stems from such fields as food production, life sciences, transportation, textiles, power generation, and wastewater treatment.

We recently got a new buying opportunity for the stock. On Jan. 16, shares of Rockwell started selling off in advance of the firm’s fiscal 2018 first quarter report. Between then and when the stock bottomed out March 1, Rockwell shares plummeted 15%.

But it turned out to be an overreaction at a time when the broad market was under pressure. It didn’t help that, because of the impact of taxes, the firm reported a loss on a diluted share purchase.

However, after adjusting for that and other factors, earnings came in at $1.96, up 12% from the year-ago quarter.

Even better, Rockwell raised guidance and now projects that adjusted EPS for this fiscal year will come in up to 16% higher. Plus, the board of directors authorized the company to spend another $1 billion to buy back shares.

Add it all up and you can see that we have a backend tech supplier that will play a critical role in the coming rebirth of American steel.

And with earnings on the move, we can count on the stock to rally from here.

*This has been a guest post by Money Morning*

 Related: These Metals Drive the Tech Boom – Here’s How to Profit from Them. 

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