Precision Castparts Corp. (PCP) reported third-quarter fiscal 2015 results, with earnings from continuing operations of $3.09 per share slightly surpassing the Zacks Consensus Estimate of $3.08. Also, quarterly earnings were up 5% from $2.94 per share earned in the year-ago quarter. The year-over-year increase was primarily attributable to the success of the company’s aircraft and engines’ development and production plans.
Revenues & Margins
Revenues increased about 5% year over year to $2.46 billion from $2.34 billion in the prior-year quarter. The company witnessed 6% growth in sales on the back of productive aircraft and engine contraction programs. Returns accrued from the company’s industrial gas turbines’ trade also supported the year-over-year improvement in gross revenue. However, the top line missed the Zacks Consensus estimate of $2.52 billion by 2.2%. The revenue estimates suffered a miss due to certain adversities encountered in its trade, such as deferred shipments of the marketable aerospace customers and uncertainties in the oil and gas market. Such issues negatively impacted the company’s operating income margin by 80 basis points (bps).
Segment Results
Investment Cast Products revenues increased 4% year over year to $632 million. The segments’ demand growth was primarily driven by efficient activities in the industrial gas turbine (“IGT”) and commercial aerospace business segments. Aggregate sales of the commercial aerospace segment climbed 2% on the back of newly developed aircraft engine platforms. On the other hand, growing demand for spares, new manufacturing turbines and upgraded strategic trading programs supported 10% improvement in IGT’s sales. Improved revenues from the company’s Investment Cast Products business segment helped augment its operating income by 5% year over year.
Forged Products sales experienced a marginal year-over-year improvement of 2%. The escalation was primarily attributable to a surplus of $10 million, accumulated from favorable revert and alloy prices. However, expenses related to the de-stocking of a particular aerospace customer, weaker energy demand and deferred shipments lowered the operating margin by 230 bps.
Growth of 11% was achieved from sales of the Airframe Products trading division. The significant improvement was driven by 17% growth in commercial aerospace sales. Moreover, resourceful integration of recent acquisitions and rising demand of aerostructures helped boost the segments’ operating income by 12%.
Balance Sheet
Exiting the quarter, Precision had a cash balance of $430 million, up 19.1% from $361 million as on Mar 30, 2014. The company’s total debt level stood at $4.1 billion versus $3.6 billion as on Mar 30, 2014. The debt to capitalization ratio increased to 26.0% from 23.9% as on Mar 30, 2014. Total capital expenditure incurred in the quarter aggregated $107 million.
Looking Ahead
Precision expects earnings EPS in the range of $12.80 to $12.90 in fiscal 2015, after considering possible negative effects of the business externalities. However, the company aims to achieve steady growth until the end of fiscal 2016, backed by its IGT market share improvements, superior technological expertise, expansion in aerospace construction, strategic integration of acquisitions and attractive share repurchase programs.
With a market capitalization of $29.75 billion, Precision currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Century Aluminum Co. (CENX), Norsk Hydro ASA (NHYDY) and Abengoa SA (ABGB). While both Century Aluminum Co. and Abengoa SA sport a Zacks Rank #1 (Strong Buy), Norsk Hydro ASA holds a Zacks Rank #2 (Buy).
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