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Rockwell Beats 2Q Earnings, Gives View - Analyst Blog

Posted
4/19/2013 12:10:00 PM
By: Zacks.com
Referenced Stocks:BA;BEAV;COL;TGI

Rockwell Collins Inc. ( COL ), the supplier of avionics and military equipment, posted second quarter fiscal year 2013 earnings of $1.17 per share, surpassing the Zacks Consensus Estimate by a penny and 7% above the year-ago figure.

Operational Performance

Rockwell Collins' total sales were $1.13 billion, down 2.5% year over year.  However, the figure surpassed the Zacks Consensus Estimate by $5 million. In the reported quarter, Government Systems sales slipped as expected, partially offset by higher Commercial Systems sales.

In the reported quarter, total research and development expense was $197 million, down 7.9% year over year. Total segment operating earnings decreased 4.58% to $229 million.

Overall, Rockwell Collins reported net income of $161 million, flat year over year.

Segmental Performance

Government Systems: Government Systems sales were $578 million, a decrease of $50 million from $628 million from the same period last year.

By product category, Avionics sales decreased $41 million, or 11%, year over year, due to lower sales for development programs and reduced sales for Eurofighter.

Communication product sales declined $2 million or 1%, due to lower satellite communication product sales. However, this was mostly offset by increased deliveries of JTRS Manpack radios.

Surface solutions sales declined by $1 million or 2%, due to lower sales from development programs. However, this was partially offset by increased international sales of Firestorm targeting systems.
Navigation products sales declined $6 million or 12% due to fewer deliveries of Defense Advanced GPS Receiver products.

In the reported quarter, Government Systems generated operating income of $112 million, down from $128 million in the second quarter of 2012. The results reflect lower sales, absence of a favorable warranty adjustment recorded in the prior year and higher compensation costs. However, these were partially offset by the benefit from cost reduction actions and the completion of certain company-funded development programs.

Commercial Systems: In the reported period, Commercial Systems sales of $553 million were up $20 million from sales of $533 million reported for the same period last year.

By product category, sales related to aircraft original equipment manufacturers increased $23 million, or 8%, to $312 million year over year driven by The Boeing Company 's ( BA ) 787 and 737 aircrafts, the Bombardier Global and Challenger aircraft.

Aftermarket sales also increased $3 million to $223 million driven by higher business jet retrofits. However, this positive was partially offset by lower air transport service and support and higher spares sales last year.
In the second quarter of fiscal 2013, Commercial Systems' operating earnings increased $5 million to $117 million driven by higher sales volume. Moreover, increased compensation costs were offset by lower company-funded research and development expense.

Financial Condition

Rockwell Collins ended the quarter with cash and cash equivalents of $337 million. At the end of fiscal 2012, ending on Sep 30, 2012, the company had $335 million in cash. Long-term debt, net was $570 million versus $779 million at fiscal-end 2012, ending on Sep 30, 2012.

During the quarter under review, Rockwell repurchased 1.4 million shares of common stock for $84 million. During the quarter, the company was sanctioned the repurchase of its common stock worth $500 million from its board of directors.  The current approval takes the share authorization amount to $604 million. Going forward, the company intends to maintain an active share repurchase program.

Guidance

Rockwell Collins expects fiscal 2013 earnings per share in the range of $4.45-$4.65. It expects total sales in the range of $4.6 billion to $4.7 billion. It expects total research & development investment to be approximately $950 million.

Our Take

Rockwell Collins succeeded in beating the Zacks Consensus Estimate on the back of a few contract wins and product innovations. Going forward, the company's ongoing share repurchase program and its strong balance sheet would drive the bottom line of the company. However, we are concerned about the U.S. government's delayed funding authorizations, high exposure to fixed price contracts and high research & development overhead. The company presently retains a short-term Zacks Rank #3 (Hold).

Stocks worth considering are B/E Aerospace Inc. ( BEAV ) and Triumph Group, Inc. ( TGI ), both with a Zacks Rank #2 (Buy).



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