Precision Castparts Corp. (PCP) reported strong results for the third quarter of 2012. The company achieved top-line growth of 14.0% year over year in the third quarter 2012. The bottom-line figure increased 17.8% year over year but fell short of our estimate by 9 cents. The company’s sales increased across all of its business segments.

Third Quarter Highlights

Total revenue in the quarter increased 14.0% year over year to $1.8 billion. The surge in the top line was primarily due to strong aerospace growth in the Castings and Forgings segment which increased by about 14%. This growth was further driven by a strong aftermarket growth of approximately 25% and external sales growth of 10%, primarily from the Cannon operation.

The company reported third-quarter 2011 earnings per share of $2.12, which was below the Zacks Consensus estimate by 9 cents. However, earnings increased 17.7% year over year.

The operating income for the quarter was also up year over year by 19% to $459 billion.

Agreement of Analysts

Among the analysts covering the stock in the last 7 days, none revised their estimates either upward or downward for the fourth quarter of 2012. Similarly, for the first quarter of 2013, also there was no change in the estimates.

For fiscal 2012, again there was no revision in the estimates either upward or downward.

Precision Castparts is expected to benefit from the strong growth in the commercial aircraft market driven by new orders, high backlog and also as Boeing (BA) intends to ramp up production of its new 787 aircraft fleet. In addition, the demand for jet engines that consume less fuel, provide more power, and reduce noise and exhaust emissions will continue to grow.

However, the analysts are maintaining a cautious stand, given the high backlog and in case orders are cancelled either due to weak airline traffic (as the economy is still is the recovery phase and the consumers today are more careful about their disposable income) or higher prices of aviation fuel, it could be a big hit to the company’s profitability and margins.

Magnitude of Estimate Revisions

During the last 7 days, for the fourth quarter of 2012, the current estimate was stagnant at $2.27 a share. For the first quarter of 2013, the current estimate was same as the Zacks Consensus Estimate $2.31.

Again for fiscal 2012, in the last 7 days, the current estimate was in line with the Zacks Consensus Estimate of $8.41.

Earnings Surprises

The third quarter earnings surprise for Precision Castparts was negative 9 cents or (4.07%). The upcoming quarter of fiscal 2012 is expected to remain at break-even, while fiscal 2012 is expected to report a negative earnings surprise of 0.24%.

Summary

The trend in manufacturing of aircraft jet engines is expected to increase the revenue per engine for the company. Further, in the new seamless well casing pipe market and improvement in IGT is also expected to benefit the company in the long run.

Precision Castparts Corp. is a manufacturer of complex metal components and products – provides high-quality investment castings, forgings and fasteners/fastener systems for critical aerospace and industrial gas turbine (IGT) applications. The company currently has a Zacks Rank #3 which implies a short term (1-3 months) Hold rating on the stock.

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