Rockwell Lags on Earnings, Beats Revs - Analyst Blog


Rockwell Collins Inc. ( COL ) reported fourth quarter fiscal 2013 earnings results ending Sep 30, 2013. The company reported adjusted earnings per share of $1.28, missing the Zacks Consensus Estimate by 3 cents. Earnings were however up 20.8% year over year.

The upcast in earnings reflects the absence of a restructuring and asset impairment charge that was incurred in fiscal 2012 and a lower share count. These positives were partially offset by higher employee incentive compensation costs in 2013.

Fiscal year 2013 earnings per share of the company were $4.58, up 10.4% year over year.

Operational Highlights

Rockwell Collins' total sales in the fourth quarter of fiscal 2013 were down 1.1% year over year to $1,252 million. However, revenues easily surpassed the Zacks Consensus Estimate by $28 million. Lower sales at Government Systems were partially offset by higher sales at Commercial Systems.

Rockwell Collins' total sales in fiscal 2013 were down 2.5% year over year to $4,610 million. Revenues missed the Zacks Consensus Estimate by $11 million.

Total research and development (R&D) expenses in the fourth quarter of fiscal 2013 were $199 million, flat year over year. Total operating income during the quarter was $273 million, down 8% year over year.

Segmental Revenue

Commercial Systems: In the reported period, Commercial Systems sales of $583 million were up 3.2% year over year.

By product category, sales related to aircraft original equipment manufacturers were up 0.97% year over year to $310 million driven by higher deliveries for the Bombardier Global and Challenger aircraft partially offset by fewer deliveries for Cessna business jets.

Aftermarket sales at Commercial Systems were $254 million, up 6.3% driven by regulatory mandate upgrades.

Wide-body in-flight entertainment sales were $19 million, flat year over year.

Government Systems: Government Systems sales were $669 million, down 4.6% year over year.

By product category, Avionics sales were up 2.5% year over year to $205 million due to higher international tanker/transport hardware sales partially offset by the impact of lower simulator sales.

Communication product sales decreased 15.9% year over year to $148 million due to lower satellite and secure communication product sales, partially offset by increased deliveries of JTRS Manpack radios.

Surface solutions sales increased 8.6% year over year to $63 million driven by higher international Firestorm targeting systems sales.

Navigation products sales declined 26% to $54 million. The significant decline was due to lower deliveries of airborne and ground navigation products as a result of the withdrawal of troops from Afghanistan and Iraq.

Financial Condition

As of Sep 30, 2013, cash and cash equivalents were $391 million versus $335 million as of Sep 30, 2012. Long-term debt, net was $563 million, down from $779 million as of Sep 30, 2012.

Cash flow from operation at the end of the year was $617 million, up from $537 million in the year-ago period.

During the quarter, the company repurchased 0.9 million shares of common stock at a total cost of $62 million.

Fiscal 2014 Guidance

The company maintained its fiscal 2014 guidance provided on Sep 20, 2013. The company expects revenue in the range of $4.5 billion to $4.6 billion and earnings per share in the range of $4.30 to $4.50 for FY14. Total segment operating margins are expected in the range of 21% to 22% and cash flow from operations in the range of $550 million to $650 million. The guidance excludes the impact of the proposed acquisition of ARINC Inc. The transaction will be closed after receiving the requisite regulatory approval.

The company expects R&D investment to be approximately $950 million in fiscal 2014.

Our Take

Rockwell posted a mixed performance this quarter with revenues topping and earnings missing the Zacks Consensus Estimate. Rockwell's strong operating performance is however helping it to sustain its investments in R&D. Going forward, these actions would likely help the company in generating savings that are required to sustain margins despite the continued headwinds in the government business.

The company's short-cycle products, the U.S. government's delayed funding authorizations, program execution risk, dependence on international sales, high exposure to fixed price contracts and high research & development overhead still keep us concerned. The company presently has a short-term Zacks Rank #5 (Strong Sell).

However, stocks to look out for in the space are B/E Aerospace Inc. ( BEAV ), HEICO Corp. ( HEI ) and Hexcel Corp. ( HXL ), all with a Zacks #2 Rank (Buy).

B/E AEROSPACE (BEAV): Free Stock Analysis Report

ROCKWELL COLLIN (COL): Free Stock Analysis Report

HEICO CORP (HEI): Free Stock Analysis Report

HEXCEL CORP (HXL): Free Stock Analysis Report

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Zacks Investment Research

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

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: BEAV , COL , HEI , HXL

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