The aviation and military electronics maker
Rockwell Collins Inc.
) reported first quarter fiscal 2014 earnings results ending Dec
31, 2013. The company reported earnings per share of 96 cents,
beating the Zacks Consensus Estimate by a penny. Earnings were
also up by 2 cents year over year.
The upcast in earnings reflects solid contribution from its
Commercial Systems and Government Systems segments.
Notably, the company completed the acquisition of airline
communications and information processing solution major, ARINC
Inc., a portfolio company of The Carlyle Group, for $1.42 billion
during the first quarter of fiscal 2014.
The acquisition reshuffled Rockwell Collins' segment portfolio to
54% commercial and 46% government. Segments have been
reclassified as Commercial Systems, Government Systems and
Information Management Services. Certain amounts previously
included in the Commercial Systems segment have been reclassified
to the newly formed Information Management Services segment.
Rockwell Collins' total sales in the first quarter of fiscal 2014
were up 0.8% year over year to $1,071.0 million. The top line
came almost at par with the Zacks Consensus Estimate of $1,070.0
million. The improvement was attributable to higher sales at
Government Systems and Commercial Systems.
Total research and development (R&D) expenses in the first
quarter of fiscal 2014 were $219 million, down 3.5% year over
year. Total segment operating income during the quarter was
$214.0 million compared with $213.0 million in the year-ago
In the reported period, Commercial Systems sales of $521.0
million were up 3.0% year over year.
By product category, sales related to aircraft original equipment
manufacturers were up 1.0% year over year to $286.0 million
driven by higher hardware delivery rates for the Boeing 787
aircraft partially offset by fewer deliveries to light business
Aftermarket sales at Commercial Systems were $216.0 million, up
10.0% driven by regulatory mandate upgrades, air transport
retrofits, and a large delivery of spare parts for the 787
Wide-body in-flight entertainment sales were $19.0 million, down
30.0% year over year.
Government Systems sales were $532.0 million, down 2.6% year over
By product category, Avionics sales were up 1.0% year over year
to $317.0 million due to higher hardware sales for the E-6B
aircraft upgrade program/international program partially offset
by the impact of lower KC-46 and KC-10 development program sales.
Communication product sales decreased 11.0% year over year to
$118.0 million due to lower satellite and secure communication
product and service sales.
Surface solutions sales increased 16.0% year over year to $58.0
million driven by higher international Firestorm targeting
Navigation products sales declined 19.0% to $39.0 million. The
significant decline was due to lower deliveries of Defense
Advanced GPS Receiver (DAGR) product.
Information Management Services:
Segment sales were $18.0 million, up from $10 million in the
This segment includes air-to-ground data and voice communication
services, business aviation flight support services, airport
information technology systems, and infrastructure security
As of Dec 31, 2013, cash and cash equivalents were $439.0 million
versus $391.0 million as of Sep 30, 2013. Long-term debt, net was
$1,658.0 million, up from $563.0 million as of Sep 30, 2013.
Cash used for operating activities at the end of the quarter was
$38.0 million versus cash provided by operating activities of
$63.0 million in the year-earlier quarter.
During the quarter, the company repurchased 0.2 million shares of
common stock at a total cost of $17.0 million.
Fiscal 2014 Guidance
The company lifted its fiscal 2014 outlook. The company now
expects revenue in the range of $4.95 billion to $5.05 billion
(up from $4.5-$4.6 billion) and earnings per share in the range
of $4.35 to $4.55 (up from $4.30-$4.50). Total segment operating
margins are expected in the range of 20% to 21% versus its
earlier expectation of 21% to 22%.
Cash flow from operations is expected in the range of $600.0
million to $700.0 million versus the earlier projection of $550.0
million to $650.0 million. The guidance includes the impact of
the ARINC acquisition.
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The company maintained its R&D investment at approximately
$950 million for fiscal 2014.
We appreciate Rockwell Collins' efforts towards managing risks
related to the ongoing defense budget sequestration. The company
is currently focusing more on expanding its international
businesses, which will in turn help to secure a stable revenue
stream going forward. In addition, the company is upgrading its
core competence besides engaging in innovation.
The addition of ARINC's high-quality ground network and services
will certainly boost Rockwell Collins' existing information
management capabilities with its application beyond avionics and
cabin technologies. ARINC is a frontrunner in the aviation
management industry and offers technical support to almost every
sphere of the airline business starting from pilots, operators,
maintenance, passengers, and controllers to regulators, security
and airport operations.
Recently, the company has entered into an agreement to form a
joint venture ("JV") with a Chinese company to manufacture
commercial flight simulators and training solutions. The 50:50 JV
- ACCEL (Tianjin) Flight Simulation Co. LTD. - with Beijing
Bluesky Aviation Technology will design, manufacture and market
commercial flight simulators primarily for the Chinese market and
then spread out worldwide. This collaboration is a significant
step in the development of commercial simulation and training in
one of the fastest growing regions of the world.
Rockwell Collins presently has a Zacks Rank #2 (Buy). Also, other
stocks to look out for in the space are
TransDigm Group Inc.
Alliant Techsystems Inc
Orbital Sciences Corp.
), all with a Zacks Rank #1 (Strong Buy).