In the second quarter of fiscal year 2012 ending March 31, 2012, Rockwell Collins Inc. (COL), the supplier of avionics and military equipment, reported earnings in line with the Zacks Consensus Estimate of $1.09. Results however came higher than the year-ago quarterly earning per share of 96 cents.
Operational Performance
Rockwell Collins’ total sales fell 5% year over year to $1.16 billion, failing to meet both the Zacks Consensus Estimate of $1.18 billion and year-ago revenue of $1.22 billion. Total segment operating earnings were relatively flat at $240 million, but total segment operating margins increased to 20.7% of sales, up from 19.8% of sales in the year-ago quarter. Overall, Rockwell Collins reported net income of $161 million, an increase of $11 million, compared to $150 million in the year-ago quarter.
Segmental Performance
Commercial Systems: In the reported period, Commercial Systems sales of $533 million rose $33 million, or 7%, compared with sales of $500 million reported for the same period last year.
By product category, sales related to aircraft original equipment manufacturers increased $19 million, or 7%, to $289 million year over year. This was primarily due to higher product deliveries for its commercial aerospace customers. This includes the likes of The Boeing Company (BA) for its 777 and 747-8 series jetliners; Global platform for Canadian aircraft manufacturer, Bombardier Inc. and Airbus for its A320 aircraft.
Aftermarket sales increased $19 million, or 9%, to $220 million year over year. This was primarily driven by increased sales of spares to Boeing, and increased air transport retrofit sales.
Commercial Systems operating earnings increased $21 million, or 23%, to $112 million, resulting in an operating margin of 21.0%, compared with operating earnings of $91 million, and an operating margin of 18.2%, for the same period a year ago. The increase in operating earnings and margin was primarily attributable to higher sales volume.
Government Systems: Government Systems sales were $628 million, a decrease of $88 million, or 12%, compared to the $716 million reported for the same period last year.
Avionics sales increased $13 million, or 4%, year over year, due to increased sales of F-15 fighters for Saudi Arabia, military aerial refueling and strategic transport aircraft KC-46, and KC-10 tanker programs. This was partially offset by the completion of deliveries for the KC-135 Global Air Traffic Management program.
Communication product sales declined by $36 million, or 19%, due to the completion of a contract to provide transportable cellular equipment for Afghanistan and fewer deliveries of satellite communication terminals.
Surface solutions sales decreased $34 million, or 37%, resulting from the impact of two programs terminated for convenience in the third quarter of 2011.
Sales of Navigation products decreased by $31 million, or 38%, driven primarily by fewer deliveries of Defense Advanced GPS Receiver products.
In the reported quarter, Government Systems operating earnings of $128 million resulted in an operating margin of 20.4%, compared with operating earnings of $150 million, and an operating margin of 20.9%, for the same period last year. The decrease in operating earnings and margin was primarily due to lower sales volume. This was partially offset by lower company funded research and development costs, a favorable warranty adjustment and the benefit realized from prior-year restructuring actions.
Financial Condition
Rockwell Collins ended the quarter with cash and cash equivalents of $297 million. At year-end fiscal 2011, ending on September 30, 2011, the company had $530 million in cash. Long-term debt excluding current maturity was $774 million versus $528 million at fiscal-end 2011, ending on September 30, 2011. Rockwell Collins generated $45 million of cash from operating activities over the last six months. At the end of the year-ago period the company generated $127 million of cash from operating activities. In the reported quarter, the company repurchased 1.9 million shares of common stock at a total cost of $112 million, leaving $206 million authorized for additional share repurchases. The company also paid dividends on its common stock totaling $35 million, or 24 cents per share.
On April 18, 2012, the Board of Directors approved an increase in the quarterly dividend paid on its common stock by 25% to 30 cents per share. The new rate would be effective with the next dividend payable on June 4, 2012, to shareholders of record at the close of business on May 14, 2012.
Outlook
Rockwell Collins reaffirmed its fiscal 2012, ending on September 30, 2012, earnings guidance range of $4.40 to $4.60 per share. The company however reduced its fiscal 2012 revenue guidance to about $4.85 billion versus its earlier guidance range of $4.9 billion – $5.0 billion.
Rockwell Collins currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock.
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