Precision Castparts Corp. (PCP) reported its second-quarter fiscal 2015 results with earnings from continuing operations of $3.24 per share, lagging the Zacks Consensus Estimate of $3.29. However, quarterly earnings were up 12.5% from $2.88 per share in the year-ago quarter. Year over year earnings were primarily attributable to accretive acquisitions.
Revenues &Margins
Revenues increased about 7.7% year over year to $2.52 billion from $2.34 billion reported in the prior year quarter. 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 9% year over year to $706 million.
Segment Results
Investment Cast Products revenues increased 3.8% year over year to $631 million. Sales growth was partially offset by decrease in contractual material pass-through pricing. Commercial aerospace sales increased about 4% year over year, reflecting a steady upward trajectory fueled by the segment's strong presence across all major aircraft/engine platforms, both in production and in development.
In addition, improved business jet sales also had a favorable impact on the top line while military shipments were flat year over year. Further, the industrial gas turbine (IGT) reported 7% increase in sales, driven by an increased presence on upgrade programs and steady spares demand.
Forged Products revenues also rose 3.4% year over year to $1,075 million. Contractual pass-through pricing in the second quarter was flat yare over year. Commercial aerospace sales were sturdy; while seamless interconnect pipe sales increased by over 30%.
In the second quarter, Forged Products incurred approximately $30 million of costs due to lost absorption, reduced sales, and expenses associated with large-scale, scheduled annual maintenance. However, the segment benefitted from strong contributions from TIMET, while driving further cost reduction and productivity initiatives across its base manufacturing facilities and continuing to extract value from more effective asset utilization.
Airframe Products revenues surged 18% year over year to $816 million. Aerospace sales, the primary driver of the segment, reported a 20% growth compared with the same period last year. The fastener operations saw stronger shipment schedules and increased order rates across all major commercial aircraft platforms. Further, the aerostructures businesses supported high levels of demand from current airframe production programs.
Balance Sheet
Exiting the quarter, Precision Castparts had a cash balance of $404 million, up 11.9% from $361 million as on Mar 30, 2014. The company’s total debt level stood at $4.3 billion versus $3.6 billion as on Mar 30, 2014. The debt to capitalization ratio of the company increased to 27.1% from 23.9% as on Mar 30, 2014. Total capital expenditure incurred by the company in the quarter aggregated $103 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.
Precision Castparts currently holds a Zacks Rank #3 (Hold). Some better performing companies in the sector include Century Aluminum Co. (CENX), Norsk Hydro ASA (NHYDY) and Worthington Industries, Inc. (WOR). All three carry a Zacks Rank #1 (Strong Buy).
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