Rockwell Collins Inc. (COL), the supplier of avionics and military equipment, reported fourth quarter and fiscal 2011 results. The company’s pro forma earnings of $1.13 per share in the fourth quarter were a penny short of the Zacks Consensus Estimate of $1.14. However, results comfortably beat the year-ago quarterly earnings per share of 93 cents.
During the fourth quarter of 2011, the company sold the Rollmet product line with a gain of 11 cents from the divestiture, which was offset by a concomitant restructuring charge of 11 cents.
In fiscal 2011, the company’s pro forma earnings per share were $4.05, in-line with the Zacks Consensus Estimate of $4.05 per share.
Operational Performance
Rockwell Collins’ total sales in the fourth quarter of $1.3 billion fell short of the Zacks Consensus Estimate by $18 million. However, it exceeded the year-ago figure of $1.27 billion.
For the full-year 2011, the company reported net sales of $4.8 billion, below the Zacks Consensus Estimate of $4.9 billion but above the year-ago figure of $4.6 billion. The top-line was driven by an increase in Commercial Systems sales partially offset by a lackluster Government Systems performance.
Total quarterly segment operating earnings were $271 million, up 9.3% year over year. Overall, Rockwell Collins reported a net income of $175 million, an increase of $25 million year over year.
Segment Performance
Commercial Systems sales were up $44 million to $517 million in the reported quarter, compared with $473 million in the year-ago quarter.
Commercial Systems’ fourth quarter operating earnings increased $22 million, or 28%, to $101 million, resulting in an operating margin of 19.5%, compared with operating earnings of $79 million, and an operating margin of 16.7%, for the same period a year ago. The increase in operating earnings and margin was due to higher sales volume, partially offset by higher company-funded research and development and selling, general and administrative expenses.
By product category, sales related to aircraft original equipment manufacturers increased $37 million to $268 million year over year driven by higher product deliveries for the Bombardier Global platform and increased sales of avionics to air transport OEMs resulting from higher aircraft production rates.
Aftermarket sales increased $6 million to $214 million year over year primarily driven by increased service and support sales. However, this was partially offset by the absence of Project Liberty spares delivered in fourth quarter 2010.
Segment operating earnings in the fourth quarter increased 28% year over year to $101 million, resulting in an operating margin of 19.5% compared with operating earnings of $79 million, or an operating margin of 16.7%, in the year-ago period.
Government Systems sales fell $19 million year over year to $779 million in the fourth quarter 2011.
By product category, Avionics sales increased $4.0 million year over year to $414 million on the back of KC-46A tanker and the E-6 aircraft upgrade programs, partly offset by the completion of deliveries for the KC-135 GATM program. Communication product sales declined by $14 million to $188 million due to the completion of deliveries last year for two satellite communication upgrade programs.
Surface solutions sales increased $2 million to $97 million as a result of increased deliveries of public safety vehicle systems and increased revenue for the Common Range Integrated Instrumentation System program, partially offset by two programs terminated for convenience in the third quarter. Sales of Navigation products decreased by $11 million to $80 million due to fewer deliveries of Defense Advanced GPS Receiver products.
Quarterly segment operating earnings were up $1 million to $170 million resulting in an operating margin of 21.8% versus operating earnings of $169 million, and an operating margin of 21.2%.
Financial Details
For the year ended September 2011, Rockwell Collins reported cash and cash equivalents of $530 million compared with $435 million at the end of fiscal-year 2010. Long-term debt, net was $528 million versus $525 million at fiscal-end 2010, ending on September 30, 2010.
Rockwell Collins generated $657 million of cash from operating activities in the twelve-month period ending on September 30, 2011 as compared to $711 million in the year-ago period.
Outlook
The company believes that the balance and diversity of its business will likely enable continued revenue growth for fiscal-year 2012 driven by the strength of commercial markets. It also expects to realize additional operating margin expansion, cash flow generation aligned with long-term goals, and earnings per share growth at more than three times the rate of sales growth.
For fiscal year 2012, the company expects total revenue to be in the range of $4.9 billion to $5 billion. Earnings per share from continuing operations are expected to be in the range of $4.40 to $4.60. The company projects cash flow from operations to be in the range of $625 million to $725 million for the full year 2012.
At the Peer
Yesterday, a Rockwell peer, Raytheon Company (RTN) reported third-quarter 2011 adjusted earnings of $1.39 per share, beating the Zacks Consensus Estimate of $1.33. Results were also higher than the year-ago quarterly earnings of $1.35 per share. Revenue reported by Raytheon in the quarter under review was $6.13 billion, down 2% from $6.27 billion in the year-ago period and also short of the Zacks Consensus Estimate of $6.39 billion.
Our Take
Rockwell Collins is the foremost global supplier of communications and avionics equipment for both commercial and military customers. Its balanced exposure to both types of customers allows the company to use government funding to develop products for the dual-end market. Furthermore, a strong balance sheet, incremental dividend, and an ongoing share repurchase program add visibility to the story.
However, these are offset by the U.S. government’s delayed funding authorizations, program execution risk, dependence on international sales, high exposure to fixed price contracts and high research and development overhead. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Rockwell Collins, Inc., headquarteredin Cedar Rapids, Iowa, designs navigation, signals intelligence; weapons systems as well as surveillance systems for government, military, and commercial applications.
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