Rockwell Collins Beats Q3 Earnings Estimates, Sales Rise Y/Y

Rockwell Collins Inc. COL reported third-quarter fiscal 2014 earnings results ending Jun 30, 2014. The company's adjusted earnings per share of $1.19 surpassed the Zacks Consensus Estimate and improved from the prior-year figure by a penny. This was primarily driven by an improvement in sales.

Operational Highlights

 

In the fiscal third quarter, Rockwell Collins' total sales were $1,264 million, lagging the Zacks Consensus Estimate of $1,302 million by 2.9%. However, the top line increased 11.7% year over year, primarily on the back of the ARINC Inc. acquisition.

 

Total segment operating income during the quarter was $263 million compared with $257 million in the year-ago quarter, reflecting 2.3% year-over-year growth.

 

Rockwell Collins' total research and development (R&D) expenses were $230 million, up 2.2% year over year.

 

Interest expenses increased to $15 million from $7 million a year ago primarily due to a rise in long-term debt.

 

Segmental Revenue

 

Commercial Systems: In the quarter under review, segmental sales of $583 million were up 5.8% year over year, primarily on the heels of higher hardware delivery rates for the Boeing 787 aircraft, customer funded development program sales and Boeing 747-8 and 787 spares sales, and higher service and support activities.

 

Government Systems: The segment reported sales of $535 million, down around 6% from the prior-year figure mainly due to lower Avionics sales as a result of a decline in hardware deliveries for the E-6 program and the completion of certain rotary wing upgrade programs. In addition, a decrease in Communication product sales due to lower deliveries of JTRS Manpack radios also impacted segmental revenues.

 

Information Management Services: Segment sales were $146 million, up from $12 million in the year-ago period primarily due to the acquisition of ARINC Inc.

 

Business Update

 

Rockwell Collins has entered into an agreement to sell its satellite communications systems business, previously known as Datapath, Inc. The transaction is subject to several conditions and is expected to complete in fourth-quarter fiscal 2014.

 

Financial Condition

 

As of Jun 30, 2014, Rockwell Collins' cash and cash equivalents were $450 million versus $391 million as of Sep 30, 2013.

 

Long-term debt (net) was $1,663 million as of Jun 30, 2014, up from $563 million as of Sep 30, 2013.

 

Cash provided by operating activities during the first nine months of fiscal 2014 was $237 million versus $309 million in the year-ago comparable period.

 

During the quarter, Rockwell Collins repurchased 0.65 million shares of common stock at a total cost of $51 million.

 

Fiscal 2014 Guidance

 

Rockwell Collins narrowed its earnings guidance for fiscal 2014 to $4.45–$4.55 per share from the previous projection of $4.40–$4.55 per share, given the strong contribution from its Information Management Services segment as a result of the ARINC Inc. acquisition.

 

The company expects total segment operating margin of around 21%.

 

Rockwell Collins however reduced its fiscal 2014 revenue guidance to $4.90–$4.95 billion from the prior forecast of $4.95–$5.05 billion due to the proposed divestiture of its satellite communications systems business.

 

The company reiterated its guidance for cash flow from operations in the range of $600 million to $700 million.

 

Rockwell Collins also maintained its R&D investment at approximately $950 million for fiscal 2014 while capital expenditure will likely be $160 million.

 

At the Peer

 

Alliant Techsystems Inc. ATK is slated to release its first-quarter fiscal 2015 earnings on Jul 31. The Zacks Consensus Estimate is pegged at $2.45.

 

Zacks Rank

 

Rockwell Collins currently has a Zacks Rank #2 (Buy). Investors can also consider stocks like CAE Inc. CAE and Curtiss-Wright Corp. CW, both carrying a Zacks Rank #2 (Buy).