Rockwell Collins Inc. (COL) reported 96 cents per share in the second quarter of fiscal year 2011, in-line with the Zacks Consensus Estimate.
The result also comfortably beat the year-ago quarterly earnings per share of 93 cents.
Rockwell Collins' fortunes are tied to the cyclical commercial aerospace market, which is currently undergoing a recovery phase. Recently, the commercial aerospace market witnessed higher air traffic precipitated by rising demand for air travel and cargo services.
Operational Performance
Total sales for Rockwell Collins rose by 7% to $ 1.22 billion, beating the Zacks Consensus Estimate of $ 1.20 billion and higher than $ 1.14 billion in the year-ago quarter. The upside was driven by higher sales in both Commercial Systems and Government Systems.
Total quarterly segmental operating margins were 19.8%, compared to 19.2% in the year-ago period. Overall Rockwell Collins reported a net income of $ 150 million, an increase of $ 2 million, or 1%, compared to the year-ago quarter.
Segmental performance
Commercial Systems
Commercial Systems sales rose $ 58 million or 13% to $ 507 million, compared to $ 449 million in the year-ago quarter.
By product category, sales related to aircraft original equipment manufacturers increased $ 37 million, or 16%, to $ 270 million year-over-year. This was primarily due to higher product deliveries for its commercial aerospace customers. This includes The Boeing Company (BA) for its 737 and 787 series jetliners; Textron Inc. (TXT) for its Cessna CJ-4 light corporate jets; and multiple platforms for Canadian aircraft manufacturer, Bombardier Inc.
Aftermarket sales increased $ 27 million, or 15%, to $ 208 million year-over-year. Sales related to wide-body in-flight entertainment products and services decreased $ 6 million to $ 29 million.
Operating earnings for Commercial Systems increased 33% year-over-year to $ 92 million, resulting in an operating margin of 18.1%, compared to operating earnings of $ 69 million, or an operating margin of 15.4%, in the year-ago period.
The increase in operating earnings and margin was primarily attributable to higher sales volume. This was partially offset by an increase in selling, general and administrative expense, employee incentive compensation and research and development costs.
Government Systems
Sales for Government Systems climbed 3% or an increase of $ 23 million to $ 716 million, compared to the prior-year quarter.
By product category, Airborne solutions sales increased $ 42 million, or 9%, to $ 497 million year-over-year. This was due to higher revenues related to rotary wing platforms, the Common Range Integrated Instrumentation System and the E-6 aircraft upgrade program. This was partially offset by lower sales on the KC-135 GATM program.
Surface solutions sales decreased $ 19 million, or 8%, to $ 219 million year-over-year. This was due to the completion of a satellite communication upgrade program in the year-ago quarter and fewer deliveries of iForceTM systems to the California Highway Patrol. The downside was partially offset by revenue from a program to provide transportable cellular capabilities in Afghanistan.
Government Systems operating earnings were flat year over year at $ 150 million, resulting in an operating margin of 20.9%, versus an operating margin of 21.6% in the year-ago quarter. The decrease in operating margin was primarily the result of higher employee incentive compensation expenses. This was partially offset by incremental volume sales.
Financial Condition
Rockwell Collins ended the quarter with cash and cash equivalents of $ 236 million. At year-end fiscal 2010, the company had $ 435 million in cash. Long-term debt excluding current maturity was $ 509 million, versus $ 525 million at fiscal-end 2010.
Rockwell Collins generated $ 127 million of cash from operating activities in the six month period ending on March 31, 2011. At the end of the year-ago period, the company generated $ 280 million of cash from operating activities. The decrease in cash from operating activities resulted primarily from higher payments for pre-production engineering effort, employee incentive compensation and inventory purchases for anticipated production volume.
In the reported quarter, Rockwell Collins repurchased 1 million shares of its common stock at a total cost of $ 65 million and disbursed $ 38 million as dividends. As of March 31, 2011 the company had $ 117 million of authorized share repurchase pending.
Outlook
Rockwell Collins raised its fiscal 2011 earnings per share guidance. The company now expects earnings per share to be in the range of $ 3.90 – $ 4.10 from the earlier guidance range of $ 3.85 – $ 4.05. The company however reaffirmed its fiscal 2011 revenue guidance range of $ 4.8 billion – $ 5.0 billion.
Rockwell Collins currently retains a Zacks #3 Rank, which translates into a short-term 'Hold' rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock.
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