Precision Castparts Beats Slightly - Analyst Blog

Precision Castparts Corp. (PCP) released its third quarter 2011 earnings results before the opening bell today, reporting earnings per share from continuing operations of $1.80 compared with $1.61 per share in the prior year quarter. The company outperformed the Zacks Consensus Estimate by merely 1 cent.

Revenue Details

Total revenue was $1.59 billion compared with $1.36 billion in the prior year quarter. Improved performance in aerospace and increased sales in general industries benefited the company's results in the quarter.

Revenue was up in all the reporting segments, with the Investment Cast Products and Forged Products both showing double digit growth rate. Investment Cast Products revenue surged by 18.3% year-over-year to $537.7 million and Forged Products revenue was up 20.7% to $708.5 million.

Fastener Products revenue increased in single digit, up 6.6% to $344.1 million. Aerospace sales in all the three segments improved on a year-over-year basis during the quarter, up 30%, 25% and 5% in Investment Cast Products, Forged Products and Fastener Products, respectively.

Profit

Total segment operating profit amounted to $386.9 million, representing a year-over-year increase of 9.2%. Consolidated segment operating margin was 24.3% in the quarter compared with 26.0% in third quarter 2010.  

Investment Cast Products operating income was $170.8 million, up 24.2%, Forged Products operating income was $141.8 million, up 20.0% and for Fastener Products was up 30.5% to $104.8 million.

Balance Sheet

Exiting the third quarter,   Precision Castparts had cash balance of $822 million with total debt of $236.9 million and total equity of $6,812.9 million. Total capital expenditure incurred by the company in the quarter amounted to $31.7 million.

Outlook

With the improving aerospace and general industrial sales, the company sees opportunities for further market penetration, providing upside potential for the next quarter.

Precision Castparts is one of the few manufacturers that can consistently produce the largest and most complex structural investment castings in quantities sufficient to meet customer quality and delivery requirements.

Its emphasis on low-cost, high-quality products with timely delivery has made it the leading supplier of structural and airfoil castings for jet aircraft and IGT engines, and has helped it expand into the structural airframe and armament markets. The commercial aerospace market cycle is critical to demand for precision investment casting products.

However, Precision Castparts is subject to various federal, state and foreign environmental laws and regulations concerning, among other things, water discharges, air emissions, hazardous material and waste management and environmental cleanup.

Environmental laws and regulations continue to evolve and PCP may be subject to increasingly stringent environmental standards in the future, particularly under air quality and water quality laws and standards related to climate change issues.

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. Major competitors of Precision Castparts are Alcoa, Inc. (AA) and Sumitomo Metal Industries Ltd.

We currently maintain a Neutral recommendation on Precision Castparts, with a Zacks #3 Rank (short-term Hold recommendation).