By Calvin Biesecker
Rockwell Collins [COL] yesterday posted strong first quarter financial results driven primarily by higher sales and operating earnings at its business that supports commercial aircraft as well as a handsome benefit from an extension of the federal tax credit for research and development (R&D) expenses.
As a result of the tax benefit, the company raised its earnings guidance for FY ’11 by a dime to between $3.85 and $4.05 earnings per share (EPS).
Net income increased 25 percent to $151 million (96 cents EPS) from $121 million (76 cents EPS) a year ago, driven by higher sales and the tax benefit. The income result topped consensus estimates by eight cents. Sales increased 8 percent to $1.1 billion from $1 billion a year ago, led by gains in the Commercial and Government Systems segments. Organic growth accounted for 7 percent of the gain.
Revenues at Commercial Systems grew 12 percent to $460 million due to increased sales to aftermarket and original equipment manufacture (OEM) customers. Operating earnings grew 24 percent to $84 million on higher sales and improved margins.
The company “continues to see robust OEM growth early in this recovery and now equivalent growth in the aftermarket with business jets leading the way,” Clay Jones, Rockwell Collins chairman, president and CEO, said on yesterday’s earnings call. He added that business jet utilization is up and expected to improve further this year.
Jones also said that business jet makers are positioning to boost their production rates and pointed to order growth outpacing deliveries at Boeing [BA] and Airbus last year, boosting his confidence in the recovery in the aviation industry.
At Government Systems, sales grew 6 percent to $650 million, higher than the company expected due to additional deliveries of a public safety system to the California Highway Patrol and of Defense Advanced GPS Receivers. Despite the sales growth, operating earnings declined 2 percent to $131 million on higher employee compensation expense, which was partially offset by the higher sales and lower pension expense.
Jones said that so far the priorities put forth by Defense Secretary Gates so far are “generally favorable” for the company, adding that if there aren’t additional delays Boeing’s 787 aircraft program and the Air Force’s KC-X aerial refueling tanker competition, “we could be in a position of opportunity for the remainder of the year.”
Overall, the company’s operating segment margins in the quarter declined 30 basis points to 19.4 percent.