Goodrich Corporation (GR) announced first quarter 2011 operating earnings of $ 1.52 per share versus 86 cents in the year-ago quarter, reflecting a growth of 9.6%. The first quarter results surpassed the Zacks Consensus Estimate by 27 cents.
The strong earnings of the company during the quarter was mainly due to growth in sales in all market channels of the company, benefits from cost cutting initiatives, strong operational performance and favorable changes in estimates for certain long-term contracts.
Total Revenue
Goodrich's total operating revenue in first quarter 2011 was $ 1,895.9 million versus $ 1,695.2 million in the year-ago quarter, reflecting a growth of 12%. The actual results of the company were higher than the Zacks Consensus Estimate of $ 1,860 million.
Commercial aftermarket sales growth of 12% and solid performance from all three segments of the company were catalysts for the top-line growth. Even though all three segments bettered results from the comparable quarter last year, contribution from Nacelles and Interior Systems to total revenue increased 184 basis points while inputs from Actuation and Landing Systems and Electronic Systems decreased 7 basis points and 176 basis points, respectively, from the year-ago quarter.
Segmental Revenue
Actuation and Landing Systems: Revenues from this division increased to $ 684.3 million during the first quarter from $ 613.1 million in the year-ago quarter. The year-over-year growth was due to higher original equipment sales and 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 $ 656.4 million during the first quarter versus $ 555.8 million in the year-ago quarter. The increase in revenues was mainly due to higher large commercial, regional business and general aviation airplane aftermarket sales and also due to increase in regional, business and general aviation airplane original equipment sales.
Electronic Systems: Revenues from this division were $ 555.2 million during the first quarter versus $ 526.3 million a year ago, which reflected an increase of 5.5%. The improvement was driven by increase in defense and space original equipment 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 original equipment sales.
Operational Update
Cost of sales at the end of the first quarter was $ 1,310.5 million, up 8.2% from the year-ago quarter. However, as a percentage of revenue, cost of sales declined by 192 basis points from the year-ago quarter leading to an increase in the gross profit of the company.
Selling and administrative costs rose 5.6% from the year-ago quarter. However, as a percentage of revenue, the same costs went down by 88 basis points from the year-ago quarter, reflecting benefits accrued from the cost containment initiatives undertaken by the company.
Goodrich's total operating income in first quarter 2011 was $ 300.3 million versus $ 221.0 million in the year-ago quarter, reflecting a growth of 35.9%.
Interest expenses during the quarter were $ 34.6 million versus $ 33.5 million in the year-ago quarter.
Financial Update
Cash and cash equivalents of the company as of March 31, 2011 were $ 811.1 million versus $ 778.4 million as of March 31, 2010.
Goodrich's capital expenditure during the quarter was $ 36 million, up 71.4% from $ 21 million in the corresponding quarter, a year ago. The company expects capital expenditures to range approximately from $ 300 to $ 350 million for 2011.
Free cash flow at the end of the quarter was $ 62 million, which reflected a substantial growth of $ 52 million from the year-ago quarter.
Guidance
Goodrich expects to sustain its strong performance in the first quarter through the rest of the year. As a proof, the company raised its sales guidance to $ 7.8 billion for 2011, the high end of the previously expected range of $ 7.7 billion to $ 7.8 billion.
The expected 2011 total sales reflect a growth of 12% from the 2010 level. The sales forecast for 2011 takes into consideration 15% growth in large commercial airplane original equipment sales, a 30%–35% growth in regional, business and general aviation airplane original equipment sales, including incremental sales associated with the DeCrane acquisition, as well as 8%–10% 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 $ 5.40 to $ 5.55 for 2011, up from the previous estimate of $ 5.30 to $ 5.45, and a growth of 20%–23% from 2010 levels.
Management expects a 30% effective tax rate for 2011 and 32% in the next three quarters of 2011. The total worldwide pre-tax pension expense of the company is expected to be $ 88 million, down from $ 162 million in 2010.
Our Take
Goodrich surpassed both our revenue and earnings forecast for the first quarter on the strength of its operating segments. The projected sales growth of the company, for 2011, will be driven by internal sources with as much as 10% derived from organic sources out of the projected 12%.
Goodrich currently retains a Zacks #2 Rank (short-term Buy 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. The company competes with Honeywell International Inc. (HON) and United Technologies Corp. (UTX)
Based in Charlotte, North Carolina, Goodrich Corporation supplies aerospace components, systems, and services to its worldwide customers.
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