Following Goodrich Corporation’s (GR) mixed third quarter 2010 earnings results on October 21, 2010, analyst sentiments on the stock were definitely bearish.
Third Quarter Earnings Review
Goodrich announced third quarter 2010 operating earnings of $1.25 per share versus $1.14 in the year-ago quarter, reflecting a growth of 9.6%. Results handsomely surpassed the Zacks Consensus Estimate of $1.13.
Goodrich’s total operating revenue in the quarter was $1,748 million versus $1,647.7 million in the year-ago quarter, reflecting a growth of 6%. The actual results of the company were lower than the Zacks Consensus Estimate of $1,799 million.
The year-over-year growth in total revenue was attributable to better performance from all three segments of the company. Even though all three segments posted higher revenues year over year, the proportionate contribution to total revenue varied. Electronic Systems’ contribution to total revenue increased 290 basis points from the year-ago quarter. However the contribution to total revenue from the Actuation and Landing Systems, and Nacelles and Interior Systems decreased 210 basis points and 80 basis points, respectively, from the year-ago quarter.
We have discussed the quarterly results at length here: Mixed Results from Goodrich
Agreement of Analysts
Goodrich lowered its 2010 sales expectation marginally to $7 billion from the previous expectation of $7.1 billion due to trepidations in the business jet market and cutbacks in the defense budget. The expected 2010 total sales reflect a growth of 5% from the 2009 level. The sales forecast for 2010 takes into consideration a 4% growth in large commercial airplane original equipment sales, a 4% growth in Regional, business and general aviation airplane original equipment sales as well as a 15% growth in Defense and space sales of both original equipment and aftermarket products and services.
Earlier in September 2010, Goodrich completed the acquisition of the Cabin Management assets of DeCrane Holdings Company for approximately $280 million. Inclusion of DeCrane’s Cabin Management assets will boost the capacity of Goodrich’s Interiors Strategic Business Unit, within its Nacelles and Interior Systems segment. DeCrane’s Cabin Management business unit provides seating, furniture, veneers and cabin management systems to the business jet market. The acquisition is however expected to be neutral to earnings in 2010, and to become accretive beginning only in the first quarter of 2011.
The overall trend in ongoing quarterly estimates leans on the negative side, with 8 out of 10 downward revisions in the last 7 days. In comparison, a lone analyst has revised his estimate upward in the last 7 days. For 2010, 2 (out of 6) analysts moved their estimates downward in the last 7 days, while 2 upped their estimates.
Magnitude of Estimate Revisions
As a result, the magnitude of estimate revisions is modest following the third quarter results. Over the past 7 days, estimates for the fourth quarter have gone down by 5 cents to $1.19 while estimates for fiscal 2010 and first quarter of fiscal 2011 have been lowered by 6 cents and 4 cents, respectively.
Our Recommendation
Based in Charlotte, North Carolina, Goodrich supplies components, systems and services to the commercial and general aviation airplane markets. The company also supplies systems and products to the global defense and space markets. Businesses include manufacturing, service and sales, which are carried out in locations throughout the world.
Goodrich’s products and services are sold in North America, Europe and Asia. Goodrich operates three business segments – Actuation and Landing Systems, Nacelles and Interior Systems, and Electronic Systems.
Goodrich Corporation’s geographically diverse customer mix, strong balance sheet, incremental dividend-paying history, ongoing share repurchase program and a relatively cheap earnings-based valuation support our bullish outlook for the company. In October 2010, the company raised its quarterly dividend by 7% from 27 cents to 29 cents per share.
However, this is offset by the depressed fortunes of the business jet market, high research and development overheads and regulatory risks. We currently have a market Neutral recommendation on the Zacks #3 Rank (Hold) stock.
GOODRICH CORP (GR): Free Stock Analysis Report
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