Precision Castparts Corp. (PCP) reported its first-quarter fiscal 2015 results with earnings from continuing operations of $3.32 per share, lagging the Zacks Consensus Estimate of $3.35. However, quarterly earnings were up 15.3% from $2.88 per share in the year-ago quarter.
Revenues & Margins
Revenues increased about 7% year over year to $2.53 billion but fell short of the Zacks Consensus Estimate of $2.60 billion. On an organic basis, sales increased 4%, excluding the effect of metal/revert pricing. The inclusion of Permaswage and Aerospace Dynamics International businesses in the company also drove the top line. The company reported strong revenue growth in all three of its operating segments.
Precision Castparts’ consolidated segment operating income improved 14% year over year to $736 million, while segment operating margin expanded 190 basis points to 29.1%.
Segment Results
Investment Cast Products revenues increased 1% year over year to $625 million. Sales growth was partially offset by about $5 million decrease in contractual material pass-through pricing. Large commercial aerospace sales increased approximately 5%, offsetting the continuous soft demand in military and regional/business jet markets. This segment’s industrial gas turbine (IGT) business also marked 5% growth driven by the improvement in spare sales and upgrade programs. The increase completely offset the sluggishness in the OEM turbine business.
Forged Products revenues also rose 2.9% year over year to $1,096 million. First quarter revenues included a year-over-year decline in alloy and revert selling prices of approximately $50 million. Aerospace sales increased approximately 2% year over year, driven by the increase in regional/business jet sales while the military and large commercial sales remained flat year over year. IGT sales grew about 10%, while interconnect pipe sales surged 50% year over year. However, the revenues from the Oil & gas shipments segments dropped 9% in the quarter. The segment benefited from the improvement in the base businesses and the successful integration of the TIMET business.
Airframe Products revenues surged 18% year over year to $807 million. Aerospace sales increased 22% year over year. The segment witnessed improved customer orders driven by increasing demand for key components and increased shipment schedules. The performance of Airframe Products also improved in the quarter attributable to increased volumes in its base business along with an ongoing integration of acquisitions. The segment is also focused on leveraging operational execution to meet increasing customer demand.
Balance Sheet
Exiting the quarter, Precision Castparts had a cash balance of $373 million, up 3.3% from $361 million as on Mar 30, 2014. The company’s total debt level stood at $3.9 billion versus $3.6 billion as on Mar 30, 2014. Total capital expenditure incurred by the company in the quarter aggregated $76 million.
Looking Ahead
Precision Castparts expects its business to be driven by robust activity in the commercial aerospace sector in the year. The company has a strong foothold in base aircraft business, especially for the 787 components, which coupled with the increasing demand for Airframe Products are the positives. The company also expects significant growth in fiscal 2016-2018 in the casting and forging businesses on the back of the upcoming next-generation engines designed for the narrow-body aircrafts.
For the second quarter of 2015, Precision Castparts plans to undertake crucial developments of its key assets to enhance productivity and throughput to meet rising demand. The second-quarter results are likely to be adversely impacted by the decrease in throughput as well as the lost absorption.
Precision Castparts is anticipating growth across all the four segments in the third and fourth quarter. The company is also intending to utilize its strong cash flow levels to drive growth going forward.
The company also expects its IGT business to recover going forward as suggested by healthy backlog levels in the business. Precision Castparts’ unique capabilities in the oil and gas industry are enabling it to win large contracts that are expected to add significantly to its growth in fiscal 2015 and 2016.
Precision Castparts currently has a Zacks Rank #2 (Buy). Some better-ranked stocks in the sector include Kaiser Aluminum Corporation (KALU), NN Inc. (NNBR)and NSK Ltd. (NPSKY). All three stocks hold a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment