Goodrich Corporation (GR) 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%. The third quarter results handsomely surpassed the Zacks Consensus Estimate of $1.13.
Goodrich reported GAAP earnings of $1.25 per share in the third quarter versus $1.14 in the year-ago quarter.
Total Revenue
Goodrich’s total operating revenue in third quarter 2010 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 bettered results from the comparable quarter last year, Electronic Systems contribution to total revenue increased 290 basis points from the year-ago quarter. 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.
Segmental Revenue
Actuation and Landing Systems: Revenues from this division increased to $631.1 million during the third quarter from $629.3 million in the year ago quarter. The year-over-year growth was due to higher large commercial, regional, business and general aviation airplane aftermarket sales in the wheel and brakes business.
Nacelles and Interior Systems: Revenues from this division were $582.7 million during the third quarter versus $561.8 million in the year-ago quarter. The increase in revenues was mainly due to higher large commercial OE, business and general aviation airplane sales recorded in the aerostructures business.
Electronic Systems: Revenues from this division were $534.2 million during the third quarter versus $456.6 million in the year ago quarter, which reflected an increase of 17%. The improvement was driven by increase in defense and space OE and aftermarket sales and other aerospace and non-aerospace sales. The growth was also fueled by higher large commercial, regional, business and general aviation airplane aftermarket sales and higher regional, business and general aviation OE sales.
Operational Update
Cost of sales at the end of the third quarter was $1,206.9 million, which reflected an increase of 3.2% from the year-ago quarter. However, as a percentage of revenue, cost of sales reduced by 200 basis points from the year-ago quarter consequently increasing the gross profit of the company.
Interest expenses during the quarter were $34.9 million versus $30.7 million in the year-ago quarter. The increase in expenses reflects a hike in the debt level of the company.
Financial Update
Cash and cash equivalents of the company as of September 30, 2010 were $1,351.3 million versus $789.6 million as of September 30, 2009.
Goodrich’s capital expenditure during the quarter was $48 million versus $42 million in the year-ago quarter, reflecting a growth of 14.3%. The company expects capital expenditures to be approximately $225–$250 million for 2010 and range between $300 and $350 million for 2011.
Free cash flow was $204.4 million versus $210.7 million in the year-ago quarter.
Guidance
Goodrich lowered its 2010 sales expectation marginally to $7 billion from the previous expectation of $7.1 billion.
The expected 2010 total sales reflect a growth of 5% from the 2009 level. The sales forecast for 2010 takes into consideration 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 15% growth in Defense and space sales of both original equipment and aftermarket products and services.
Goodrich expects earnings per share to be in the range of $4.30 to $4.35 for 2010 down from the previous expectation of $4.30 to $4.45. The new earnings guidance includes an 18 cents per share impact for debt redemption costs.
Management expects 22% tax rate for the fourth quarter and 30% for the full year. The expected 2010 effective tax rate does not include a full-year benefit related to an assumed extension of the U.S. research and development tax credit.
Goodrich expects 2011 sales to range between $7.7 billion and $7.8 billion reflecting a growth of 10% to11% from the 2010 level.
The company expects 2011 net income per share to range from $5.00 to $5.20, which reflects a growth of 15% to 20% from the 2010 level. The growth is expected to come from higher productivity and cost controls.
The company expects the effective tax rate for 2011 to be similar to the 2010 level, but include a full-year 2011 benefit of approximately 1.5%, related to an assumed extension of the U.S. R&D tax credit.
Our Take
Although Goodrich marginally missed our revenue forecast for the third quarter, we believe the company can achieve strong growth using its internal resource as reflected in the 2011 guidance as a major portion of sales increase is expected from the organic sources.
Goodrich currently retains a Zacks #3 Rank (short-term Hold rating). The positive catalysts for the company are its diverse customer base and strong balance sheet. However, we maintain a Neutral rating on the stock given the regulatory risks, high research and development expenses and dependence on international sales.
Based in Charlotte, North Carolina, Goodrich Corporation supplies aerospace components, systems, and services to its worldwide customers.
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