Rockwell Collins (COL)
Q4 2012 Earnings Call
October 26, 2012 9:00 am ET
Steve Buesing - Vice President of Investor Relations
Clayton M. Jones - Chairman, Chief Executive Officer and Member of Executive Committee
Patrick E. Allen - Chief Financial Officer and Senior Vice President
Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division
Yair Reiner - Oppenheimer & Co. Inc., Research Division
Myles A. Walton - Deutsche Bank AG, Research Division
Joseph B. Nadol - JP Morgan Chase & Co, Research Division
David E. Strauss - UBS Investment Bank, Research Division
Cai Von Rumohr - Cowen and Company, LLC, Research Division
Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division
Howard A. Rubel - Jefferies & Company, Inc., Research Division
Robert Spingarn - Crédit Suisse AG, Research Division
Noah Poponak - Goldman Sachs Group Inc., Research Division
Jason M. Gursky - Citigroup Inc, Research Division
Robert Stallard - RBC Capital Markets, LLC, Research Division
Carter Copeland - Barclays Capital, Research Division
Kenneth Herbert - Imperial Capital, LLC, Research Division
Previous Statements by COL
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Thank you, Bonnie, and good morning to all of you on the call. With me on the line this morning are Rockwell Collins' Chairman 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 website 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. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including those detailed on Slide 2 of the webcast presentation and, from time to time, in the company's Securities and Exchange Commission filings. These forward-looking statements are made as of today, and the company assumes no obligation to update any forward-looking statement.
With that, I'll turn the call over to Clay.
Clayton M. Jones
Thanks, Steve, and good morning, everybody.
As we conclude our fiscal year 2012, I believe it will be remembered as one of the most unpredictable in our history as a public company. Headwinds for the year included the delay of some domestic and international orders, defense program cuts and a bankruptcy at one of our key business jet customers. All of which were beyond our control, and which in aggregate, brought our revenue forecasts down about 4% when compared to our original guidance. However, as we work through that challenging market environment, we took actions to react quickly and manage the things within our control. These actions and our focus on execution resulted in full year earnings per share within the original guidance range, excluding the onetime charges taken this fourth quarter.
I'd like to have seen a better market environment. It should not mask the great work of our people who responded to deliver higher rates of profitability and preserve future growth opportunities. Now nowhere is this more evident than in our Commercial Systems fourth quarter results that were strong across the board. Total revenue was up 9%. And if you exclude the impact of wide-body in-flight entertainment which we no longer invest in, the core business would be up 13%.
OEM revenue grew 15%, led by 26% growth in air transport, and that's after absorbing the headwind created by the reduction in output due to the Hawker Beechcraft bankruptcy.
In the commercial, aftermarket revenue increased 12%, driven by cockpit and cabin upgrades across both business segments.
It's interesting that in the year of unpredictability, this is the one we got right. We suggested in our third quarter that flat results in this area would return to growth in Q4, which is exactly what happened. We expect continued revenue growth in the aftermarket as we go into 2013, driven primarily by new product introductions that enhance aircraft efficiency and early equipage of TCAS and data link mandate.
I think you can also see the diligent work of our people in Government Systems as well despite results that were weaker this year and this quarter than we originally projected.
Looking back over this past year, accurately forecasting revenue in this sector was extraordinarily difficult, especially considering the realities of congressional gridlock, continued Pentagon re-prioritization and the uncertainty created by the pending impacts of sequestration.
Revenue for Government Systems was down 10% in the quarter, resulting from several anticipated declines, including E-6, DAGR, JTRS Ground Mobile Radio and other surface-based programs. However, what did not happen as expected was the conversion of about $75 million in growth programs that due to order delays, customer requests or changing priorities were slipped out of the year.
Let me give you some color around 2 of the largest programs that impacted the majority of this unexpected reduction in Q4.
We'd expected the Defense Acquisition Board review for the JTRS Handheld, Manpack and Small Form Factor radio to take place on July 26, resulting in an approval of the Low Rate Initial Production order and product deliveries beginning in our fourth quarter. However, due to a request for more testing, this review was delayed to October, where as you know, the program go-ahead was approved.
The other issue resulted from a European customer for a ground-based software-defined radio that has requested some enhanced capabilities to that radio, which they funded. So we agreed to their request to curtail shipments until next calendar year to incorporate the additional functionality.