Rockwell Collins Inc. (NYSE:COL), the supplier of avionics and military equipment, reported earnings of $1.01 in the third quarter of fiscal year 2011 ending June 30, 2011. This, however, fell short of the Zacks Consensus Estimate of $1.04, though results comfortably beat the year-ago quarterly earnings per share of 89 cents.Rockwell Collins fortunes are tied to the cyclical commercial aerospace market, which is currently undergoing a recovery phase. Recently, the commercial aerospace market has witnessed higher air traffic precipitated by rising demand for air travel and cargo services. The optimism was dampened by delays in U.S. government funding authorizations.Operational PerformanceRockwell Collins total sales fell by 1.5% to $1.19 billion short of both the Zacks Consensus Estimate of $1.26 billion and $1.21 billion in the year-ago quarter. The downside came from U.S. Government delaying funding authorizations and lower deliveries of iForce public safety vehicle systems.Total quarterly segmental operating margins were 20.8% compared to 18.8% in the year-ago period. Overall Rockwell Collins reported a net income of $158 million, an increase of $16 million, or 11% as compared to the year-ago quarter.
Commercial Systems sales rose $68 million or 15% to $522 million, compared to $454 million in the year-ago quarter.
By product category, Sales related to aircraft original equipment manufacturers increased $45 million, or 19%, to $285 million year-over-year. This was primarily due to higher product deliveries for Canadian aircraft manufacturer, Bombardier Inc.’s
Global platform, increased air transport aircraft delivery rates and higher sales for customer-funded development programs.
Aftermarket sales increased $28 million, or 15%, to $209 million year-over-year primarily driven by increased service and sales support and higher air transport spare hardware revenue.
Commercial Systems operating earnings increased 45% year-over-year to $107 million, resulting in an operating margin of 20.5% compared to operating earnings of $74 million, or an operating margin of 16.3%, in the year-ago period. The increase in operating earnings and margin was primarily attributable to higher sales volume and a favorable adjustment to customer incentive reserves. This was partially offset by an increase in selling, general and administrative expenses.
Government Systems sales fell 11% or a decrease of $86 million to $668 million as compared to the prior-year quarter. The decrease in sales was primarily driven by the adverse impacts to customer orders as a result of U.S. Government delayed funding authorizations and lower deliveries of iForce public safety vehicle systems.
By product category, Airborne solutions sales increased $28 million, or 6%, to $488 million year-over-year. This was due to higher revenue for The Boeing Company’s(NYSE:BA) E-6 aircraft upgrade, the Common Range Integrated Instrumentation System and KC-46A tanker programs as well as higher revenue for rotary wing platforms. This was partially offset by lower sales on the KC-135 GATM program.
Surface solutions sales decreased $114 million, or 39%, to $180 million year-over-year. This was due to fewer deliveries of iForce systems, the adverse impact from delayed funding authorization and certain programs that were terminated by the government for convenience due to budget priorities.
Government Systems operating earnings decreased $12 million to $141 million, resulting in an operating margin of 21.1%, compared to operating earnings of $153 million, or an operating margin of 20.3%, in the year-ago quarter.
The decrease in operating earnings was primarily the result of lower sales and higher company-funded research and development costs. The improvement in operating margins year-over-year, primarily resulted from a more favorable product sales mix.
Financial Condition
Rockwell Collins ended the quarter with cash and cash equivalents of $268 million. At year-end fiscal 2010 ending on September 30, 2010, the company had $435 million of cash. Long-term debt excluding current maturity was $514 million, versus $525 million at fiscal-end 2010, ending on September 30, 2010.
Rockwell Collins generated $246 million of cash from operating activities in the nine month period ending on June 30, 2011. At the end of the year-ago period the company generated $440 million of cash from operating activities. The decrease in cash from operating activities resulted primarily from higher payments for employee incentive compensation, increased pre-production engineering effort and higher inventory purchases for anticipated production volume.
In the reported quarter Rockwell Collins repurchased 1.1 million shares of its common stock at a total cost of $66 million and disbursed $38 million in dividends. As of June 30, 2011 the company had $51 million of authorized share repurchase pending.
Outlook
Rockwell Collins narrowed its fiscal 2011 ending on September 30, 2011 earnings per share guidance. The company now expects earnings per share to be in the range of $4.00 – $4.10 from the earlier guidance range of $3.90 – $4.10. The company however revised downward the upper range of its fiscal 2011 revenue guidance range. The company now expects revenue to be in the range of $4.80 billion – $4.85 billion, while the earlier range was $4.8 billion – $5.0 billion.
| Analysts' Targets | |||||||||||||||||
| William Blair & Co. | $71 | ||||||||||||||||
| Outperform | |||||||||||||||||
| Friday, July 08, 2011 | |||||||||||||||||
| UBS Securities | $76 | ||||||||||||||||
| Hold | |||||||||||||||||
| Tuesday, May 03, 2011 | |||||||||||||||||
| Deutsche Bank Securities | $72 | ||||||||||||||||
| Neutral | |||||||||||||||||
Friday, January 21, 2011
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