Rockwell Collins Expects Weak 2013 - Analyst Blog


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Rockwell Collins Inc. ( COL ) in the light of anticipated cuts to the U.S. defense budget expects fiscal 2013 earnings per share in the range of $4.30-$4.50, revenue between $4.6-$4.7 billion, and cash flow from operations of $500-$600 million. Total segment operating margins are estimated to be in the 21.0%-22.0% range.

In contrast to fiscal 2012, Rockwell Collins expects earnings per share in the range of $4.40 to $4.50, revenue of approximately $4.80 billion, and segment operating margin of 21.5%.

The downcast in fiscal 2013 outlook is owing to the effect of the Budget Control Act of 2011 which requires reductions or sequestration to U.S. defense spending beginning on January 2, 2013, the impact of which has been incorporated in the guidance.

Commercial Systems

Commercial Systems provides aviation electronics systems, products and services to air transport, business and regional aircraft manufacturers and airlines worldwide. Commercial Systems' fiscal year 2013 revenue is expected to increase by about 7% from 2012 levels.

Of this sales to aircraft Original Equipment Manufacturers (OEMs) are expected to increase in the high single digits across both the air transport, and business and regional markets. Sales to air transport aircraft OEMs should benefit from both The Boeing Company 's ( BA ) 787 series airplane production rate increase as well as the planned production rate increases of other Boeing and Airbus legacy aircraft. Business and regional jets OEM sales should improve due to modest production rate increases across most OEM customers.

Aftermarket sales for 2013 are expected to increase in the low double digits. The sales increase is expected to be driven by revenue from retrofits. Additionally, the company expects growth from business jet cockpit upgrades, air transport spares for 787 and higher service and support revenue across both markets.

Sales of wide-body in-flight entertainment products and services are expected to decrease by about 15%, or approximately $15 million, due to the company's decision in 2005 to cease investing in this product area.

Government Systems

Government Systems provides avionics, communication and navigation products, and surface solutions to the U.S. Department of Defense, state and local governments, other government agencies, civil agencies, defense contractors and foreign ministries of defense around the world. Government Systems' fiscal year 2013 revenue is expected to decrease by approximately 10%, with about half of the year-over-year decline resulting from the impact of sequestration. The remaining decline is primarily attributable to a $100 million reduction in revenue from certain programs completing the development phase and expected to begin full scale production beyond 2013. In addition to the program transitions, the company expects increased deliveries of General Dynamics Corporation 's ( GD ) Joint Tactical Radio System Manpack radios, Firestorm targeting systems and higher tanker sales to be mostly offset by lower product deliveries of Defense Advanced GPS Receiver and satellite communication terminals, the delay in the Eurofighter Tranche III and the lingering impact of programs and product lines terminated in 2012.


Earlier, Rockwell's share buyback program played an important role in improving its third quarter earnings for the period ending June 30, 2012. The company's balanced business model and capital deployment strategies provide stability to the shareholders of the company in the current challenging environment.

Moreover, the company's balanced exposure to commercial and military customers allows it to use government funding to develop products for its communications and avionics market.

However, the U.S. government's delayed funding authorizations, program execution risk, dependency on international sales, high exposure to fixed price contracts and high research and development overheads are a matter of concern for the company. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Based in Cedar Rapids, Iowa, Rockwell Collins designs, manufactures, and supports software and hardware solutions for aircraft communication, navigation, signals intelligence, and weapons systems as well as surveillance systems for government, military, and commercial applications.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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