Rockwell Collins Inc.
) reported its third quarter fiscal 2012 earnings results ending
June 30, 2012. The company reported adjusted earnings per share of
$1.15, in line with our expectation. Earnings were up 13.9% year
Including an adverse impact of 6 cents per share due to the recent
bankruptcy and production delays at Hawker Beechcraft and a lower
income tax rate benefit of 5 cents, income from continuing
operations were $1.14 per share, up 13% year over year.
Rockwell Collins' total sales were up 1.26% year over year to
$1,205 million. Revenues also surpassed the Zacks Consensus
Estimate by $39 million.
Total research and development expenses in the quarter were $201
million, down 11.5% year over year. Segment operating earnings in
the quarter under review was $253 million, up 2% year over year
from $248 million.
Rockwell Collins reported net income from continuing operations of
$166 million, up 5.7% year over year. The company's earnings per
share growth was approximately twice the rate of net income growth
attributable to its share repurchase program.
In the reported period, Commercial Systems sales of $526 million
were up 0.76% from $522 million in the previous-year period.
By product category, sales related to aircraft original equipment
manufacturers was up 4% year over year to $295 million driven by
increased sales to Airbus and
The Boeing Company
) led by higher production rates of the 787, 737 and A320
aircrafts. However, these positives were partially offset by lower
deliveries to Hawker Beechcraft as a result of a temporary
Aftermarket sales at Commercial Systems were down 0.5% year over
year to $208 million.
The segment generated operating earnings of $105 million, down $2
million from the comparable year-ago period. Operating margin was
20% versus 20.5% in the year-ago quarter. The decline reflects
increased bad debt expense related to the Hawker Beechcraft
Government Systems sales were $679 million, up 1.65% from $668
million in the third quarter of 2011.
By product category, Avionics sales were up 11.3% year over year to
$393 million driven by higher sales of Saudi F-15 fighters and the
KC-46, KC-10 and KC-390 tanker programs. Communication product
sales increased to $178 million, up 8.5% year over year, driven by
higher sales of networked communication and data link products.
Surface solutions sales amounted to $50 million, down from $82
million in the third quarter of 2011 due to the impact of two
programs that got terminated in 2011; lower sales on the Joint
Precision Approach and Landing System program and reductions in
deliveries of optical products for surface based programs.
Navigation products sales were $58 million, down 15.9% year over
year due to fewer deliveries of Defense Advanced GPS Receiver
Segment earnings increased by 4.96% year over year to $148 million.
Operating margin was 21.8% versus 21.1% in the year-ago period. The
increase reflects lower discretionary spending, partially offset by
the absence of a favorable warranty adjustment in the last year.
At the end of June 30, 2012, cash and cash equivalents were $265
million versus $268 million at the end of June 30, 2011. Long-term
debt, net was $778 million versus $514 million as of June 30, 2011.
During the quarter, the company repurchased 3.8 million shares of
common stock for $204 million and also increased the share
repurchase authorization by $500 million. The company had also
increased its dividend by 25% to 30 cents per share in April this
year, which was paid in June 2012.
The company has revised its guidance due to the slowdown in global
economic recovery and the bankruptcy of Hawker Beechcraft, one of
the company's customers. However, the company is confident of
long-term term growth as it is looking forward to a number of
product launches in the future.
For fiscal 2012, Rockwell Collins lowered its revenue guidance to
$4.80 billion versus its previous expectation of $4.85 billion. The
company now expects segment operating margin to be 21.5% versus its
prior expectation range of 20.5% to 21.5%. It expects earnings to
be in the range of $4.40 to $4.50 per share. It expects research
& development expenses to be approximately $850 million lower
from its prior expectation of $900 million.
Rockwell's share buyback program played an important role in
improving its third quarter earnings. The company's balanced
business model and capital deployment strategies provide stability
to the shareholders of the company in the current challenging
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.
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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.