Rockwell Collins [COL] on Friday posted lower earnings and sales in the first quarter of its fiscal year 2016 primarily due to declines in its defense work and a restructuring charge related to difficult conditions in the business aviation market.
The company blamed the weaker than expected results in its Government Systems business on the timing of some orders and a “supplier quality issue” that impacted planned deliveries of communications products in the quarter.
Net income tumbled 19 percent to $135 million, $1.02 earnings per share (EPS), from $167 million ($1.26 EPS) a year ago. Excluding results from discontinued operations, per share earnings in the quarter were $1.00, a penny below consensus estimates.
Sales in the quarter fell 5 percent to just below $1.2 billion from just above $1.2 billion a year ago.
The Government Systems segment posted a 19 percent decline in operating earnings to $86 million and a 10 percent decrease in sales to $293 million due to lower revenue from avionics, communication and navigation systems and products, and changes in foreign currency exchange rates.
The company took a 21 cent restructuring charge in the quarter related to headcount reductions stemming from challenging market conditions, mainly in business aviation.
Operating earnings in the Commercial Systems segment, which provides aviation electronics systems and products for commercial, business and regional air transport, was flat at $125 million while sales dipped 5 percent to $313 million.
Information Management Services, the smallest segment, reported a 14 percent increase in operating earnings to $24 million and 5 percent higher sales to $156 million.
“As we expected, our first quarter was a slow start to our fiscal 2016 plan,” Kelly Ortberg, chairman, president and CEO of Rockwell Collins, said in a statement. He said Commercial and Information Management sales and earnings were in line with plans while the government business was below expectations. Ortberg stated that the delays in the defense business will be overcome this year, “supporting our second-half growth plan in Government Systems.”
With the reinstatement by Congress last December of the federal research and development tax credit, Rockwell Collins increased its earnings guidance for FY ’16 to between $5.45 and $5.65 EPS versus the prior outlook of $5.20 to $5.40 EPS. The impact of the tax credit is partially offset by higher restructuring and incentive compensation expense.
Sales are still expected to tally between $5.3 billion and $5.4 billion. The company also raised expectations for cash flow from operations by $50 million to between $750 million to $850 million.