Rockwell Collins Inc. (COL) reported fourth-quarter 2010 earnings of 94 cents, in line with the Zacks Consensus Estimate. Results were 10 cents ahead of earnings reported in the prior-year quarter. Net income was $150 million, up 12% from $134 million in the prior-year quarter.
Revenue of Rockwell Collins was $1.28 billion, up 8% from $1.2 billion in the fourth quarter of 2009. Higher revenues at Government Systems as well as Commercial Systems drove the overall climb. Revenue was a trifle lower than the Zacks Consensus Estimate of $1.3 billion.
Total operating income improved 9% to total at $250 million in the quarter under review.
Fiscal 2010 Results
The company’s fiscal 2010 earnings of $3.52 per share were also in line with the Zacks Consensus Estimate. It, however, was lower than earnings of $3.73 per share reported in fiscal 2009. Net income declined 6% to $561 million from $594 million in the prior year.
Revenue of $4.7 billion increased 4% year over year. Higher revenues at Government Systems were partially offset by lower Commercial Systems revenue.
Total operating income was $899 million, down by 6% form the prior-year level.
Segment Update
Government Systems: Segment revenue increased 8% year over year to $798 million in the fourth quarter of 2010. Higher Airborne solutions sales as well as Surface solutions aided the improvement.
Operating income was $169 million, up 6% year over year. The improvement was largely driven by increased sales volume and lower company-funded research and development expenditures. However, higher employee incentive compensation and pension expenses muted the improvement partially.
Fiscal 2010 revenue increased 11% to $2.9 billion over the prior-year level. Operating income increased slightly by 0.8% year over year to $606 million.
Commercial Systems: Segment revenue was $484 million, up 8% over the prior-year quarter. An increase in original equipment as well as aftermarket sales largely contributed to the segment’s revenue increase.
Operating income increased 14% year over year to $81 million in the quarter. The increase was driven by sales volume growth, to some extent offset by higher employee incentive compensation and pension expenses.
Fiscal 2010 revenue decreased 5% year over year to $1.8 billion. Operating income declined by 17% to $293 million from fiscal 2009.
Financial Update
Rockwell Collins ended fiscal 2010 with cash and cash equivalent of $435 million, up 85% from the prior-year level of $235 million.
Long-term debt at quarter end totaled $525 million, lower than $532 million at the end of fiscal 2009.
Cash from operations in fiscal 2010 totaled $711 million, up 12% from $633 million in fiscal 2009. Lower payments for employee incentive compensation drove the increase in operating cash flows.
Capital expenditure in fiscal 2010 was $109 million, lower than $153 million in the prior year.
Share Repurchase and Dividend
Rockwell Collins spent $182 million to buy back 3.2 million shares in fiscal 2010.
During the fiscal fourth quarter of 2010, the board of directors increased the share repurchase authorization by $300 million. As of the 2010 fiscal year end, Rockwell Collins had $326 million remaining from the authorized share repurchases.
The company paid dividends of $151 million or 96 cents per share in fiscal 2010.
Fiscal-Year 2011 Guidance
Rockwell Collins guided total revenue to a range of $4.8–$5.0 billion.
Total segment operating margins is expected to be in the 19.5% to 20.5% range.
The company expects research & development costs to be in the range of $900 million to $950 million.
Rockwell Collins projects earnings to be in the range of $3.75 to $3.95 per share.
Cash flow from operations is expected to be $650 million to $750 million. The company expects capital expenditure to total $150 million.
Rockwell Collins is poised to deliver solid results going forward based on strong performance across the segments as well as balanced exposure to commercial and government sector. Its strong balance sheet, incremental dividend and an ongoing share repurchase program will add to the positives.
We remain “Neutral” on Rockwell Collins over the long term. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
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