Rockwell Collins, Inc. (COL)
F4Q09 (Qtr End 09/30/09) Earnings Call Transcript
November 3, 2009 9:00 am ET
Dan Swenson – VP, IR
Clay Jones – Chairman, President and CEO
Patrick Allen – SVP and CFO
Noah Poponak [ph]
Howard Rubel [ph]
Robert Stallard [ph]
Cai von Rumohr [ph]
Joe Nadol [ph]
George Shapiro [ph]
Carter Copeland [ph]
Previous Statements by COL
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Thank you, Cassandra, and good morning, everyone. With me on the line this morning are Rockwell Collins’ Chairman, President, and Chief Executive Officer, Clay Jones; and, Senior Vice President and Chief Financial Officer, Patrick Allen.
Today's call is being webcast, and you can view the slides we will be presenting today on our Web site at www.rockwellcollins.com under the Investor Relations tab. Please note today's presentation and webcast will include certain projections and statements that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to those detailed on slide two of this webcast presentation and from time-to-time in the company's Securities and Exchange Commission filings. These forward-looking statements are made as of the date hereof, and the company assumes no obligation to update any forward-looking statement.
With that, I'll now turn the call over to Clay.
Thanks Dan, and good morning, everybody. To start off by stating the obvious, 2009 was the year of extraordinary volatility and challenges for Rockwell Collins and the rest of the world. For (inaudible) less obvious, it was also a year that tested our business model and validated our strategic balance between commercial and government markets. During a time which every component of commercial systems was -- may have been impacted by market events, government systems provided a stabilizing effect to year-over-year growth and revenues, and earnings.
Looking at our financial performance for the year, total sales were $4.47 billion, down 6% from 2008 as the 21% decline in commercial systems revenues was partially offset by a 9% increase in government system sales. Total segment operating margins came in at 21.4% in 2009, only slightly lower than the 21.9% in 2008 as overall cost control and record profitability in government systems helped offset the substantially lower earnings in commercial systems. And as a result, earnings per share declined by only 10% to $3.73 despite a $500 million revenue decline in what has been our most profitable business.
Now while these results were not in keeping with our long term focus on growth, let me share with you how we have been positioning our business for the future. First, in the midst of this market and business volatility, we maintained our level of investment in research and development, spending almost $850 million or 19% of sales on R&D.
We also delivered very strong cash flow, generating a record $633 million of operating cash flow, including the impact of the $139 million in pension plan contributions we made in 2009. This strong cash flow profile and the strength of our balance sheet enabled easy access to credit markets to secure long term financing and execute our acquisitions strategy, something other companies found extraordinarily difficult or impossible over the last year.
This last quarter, we also announced additional actions that generate greater efficiency. Specifically, we're closing our San Jose, California facility and relocating related manufacturing service and engineering to lower cost work centers. The fact that San Jose is a government systems facility and the work is being moved to commercial locations is testament to our integrated business model. These moves will be carefully orchestrated over the coming months to ensure we meet product delivery and commitments to our customers. However, once finalized, this will provide us with a leaner manufacturing and engineering footprint that will improve future profitability.
Together, our strong capital profile, ability to generate consisting cash flow, and focus on operating efficiencies will help us execute our business plans as the aerospace market recovers over the coming years. But before we get there, we are going to have to weather a little more turbulence in 2010 as the final stages of the down cycle continue to unfold.
In particular, the first quarter of fiscal 2010 should mark our twelfth period in terms of overall revenue and earnings performance. While we expect to see a year-over-year Q1 improvement in air transport OEM revenues due to the effect of the BOEING strike last year, it's still way too early in the cycle to say that it's the same for the rest of commercial systems. In particular, the impact of lower business jet production will weigh heavily in the quarter due to tough comparability in the first quarter of 2009, in which the business jet OEMs had not yet felt the full effect of the economic recession.
Our aftermarket business will also be down on a year-over-year basis in Q1 as we have not seen enough of the recovery in business jet utilization and airline traffic to drive higher spending on hardware and repairs.
Additionally, we're experiencing some delays on a few government systems programs that may cause their revenue growth to be around mid-single digits for the first quarter. These are primarily timing issues that are not anticipated to impact full year growth expectations of approximately 12% to government systems. While a combination of a lower revenue base and higher compensation and pension costs, we'll also -- we also expect margins to be lower in first quarter of 2010 than they were in the fourth quarter of 2009.