Rockwell Collins Inc. (COL), a supplier of avionics and military equipment, expects strong prospects for its commercial systems business with signs of recovery in the cyclical commercial aerospace industry. In July 2010, passenger traffic worldwide grew 13.8% year over year in the premium segment while economic travel skewed 8.8%, as per The International Air Transport Association (IATA).
Expecting the tide, Rockwell expects revenue in the range of $4.8 billion – $5.0 billion, earnings per share in the range of $3.75 – $3.95, and cash flow from operations of $650 million – $750 million in fiscal 2011. Operating margin is expected to be in the range of 19.5% to 20.5%.
In the near-term, Rockwell reaffirmed its fiscal 2010 total sales guidance of about $4.7 billion with operating margin of about 19%, accumulating to earnings per share (EPS) of around $3.50.
Rockwell Flying High
Rockwell is a major supplier of aviation electronics systems, products and services to aircraft manufacturers and airlines in general -- The Boeing Company (BA) and Airbus in particular.
The commercial aviation space is bullish after Boeing recently forecasted that the air carriers in North America (U.S. and Canada) will take delivery of about 7,200 new airplanes over the next 20 years for an investment of $700 billion. The company also predicted that the commercial airliner fleet operating in the Oceania region of Australia, New Zealand and the South Pacific Islands will require 920 new airplanes worth $120 billion over the next 20 years.
Even growth is reflected in Africa, where passenger traffic grew by 13% during the first half of 2010 according to IATA. Even US cargo airlines are registering pre-recession margins in 2010 according to the IATA.
As a result, Rockwell expects its Commercial Systems business revenue to increase approximately 10% in fiscal 2011. Of this sales to aircraft Original Equipment Manufacturers (OEMs) would be boosted by the entry into service and ramp in production of Boeing's 787 and planned production rate increases of Airbus' A320.
Sales to business and regional jet aircraft OEMs are also projected to increase due to the introduction of Rockwell Collins avionics on Bombardier Inc.'s Global aircraft and bullish prospects for Textron Inc.'s (TXT) Cessna CJ-4 jet. Along with this the aftermarket sales are also expected to heat up due to continued increases in passenger traffic, airlines building additional capacity, and stronger airline profitability leading to higher demand for retrofit and spare products.
Aftermarket sales related to business and regional jet aircraft are expected to increase as a result of continued improvement in aircraft utilization and demand for retrofit products.
A Peek in the Past
In the quarter ending June 30, 2010, Rockwell Collins outpaced the Zacks Consensus Estimate of 88 cents by a penny. However, earnings per share shrunk 3 cents compared with the prior-year quarter. Total sales rose by 12% or $130 million, to $1.2 billion compared with sales of $1.1 billion in the year-ago quarter. Operating margin was 18.8% compared with 21.5% in the year-ago period.
A Pinch of Salt
Rockwell Collins bullishness, however, would be tempered with marginal growth expectation of its Government Systems business where topline is expected to grow only marginally, by approximately 2%. Government Systems provides communication and electronic systems, products and services for airborne and surface applications primarily to the U.S. Department of Defense and government agencies round the globe.
However, we have our reservations due to expected cutbacks over the U.S. defense budget looming large over the defense industry as a whole. Fortunes at the Government Systems segment are also likely to be affected by changes in defense funding profiles of countries like Italy, which are under pressure to reduce their defense spending.
The mixed trend will be reflected in sales related to airborne platforms and systems which expect increased government funding in the areas of rotary wing platform avionics, electronic systems integration and simulation and training systems. While sales related to systems and products for Surface Solutions applications are expected to be relatively flat as a result of the completion of several development programs and reduced procurement funding related to the U.S. military's involvement in Iraq.
Specific programs that will experience revenue declines during the year include the Joint Tactical Radio System programs as they transition from development to low rate initial production, lower volume following initial deliveries on an electronic system integration program for the California Highway Patrol, and reduced production rates for legacy Global Positioning System (GPS) products.
Estimates Yet to Catch Up
Rewinding the past we notice that the magnitude of estimate revisions indicates that the analysts were earlier apprehensive about Rockwell Collins' near-term prospects. In the near-term, though passenger traffic is expected to rise modestly, the market is unanimous that airlines total capacity has fallen primarily due to a reduction in utilization of out-of-warranty aircraft. This was bad news for the company, which generates a chunk of its revenue from aircraft retrofit programs.
The Street has yet to digest the bullish fiscal 2011 outlook for the company. However, the near-term picture is far from rosy for the company. The street discounting the volatility in capital markets, uncertainty about the strength of global economic recovery and the potential impact of tightening government budgets worldwide have mostly been waiting in the sidelines with their estimate post earnings.
The current Zacks Consensus Estimate for the ongoing quarter of 2010 is locked at 95 cents per share over the last 30 days. However, we expect this to change with a slew of estimate revisions after the street properly digests the news.
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. The dual-end market leads to higher volume sales, which create economies of scale that help attain cost-sensitive government contracts.
Rockwell Collins' fortunes are tied to the cyclical commercial aerospace market, which is currently undergoing a steady recovery. As per Boeing's Current Market Outlook (CMO) the world economy will continue to rebound, growing above the long-term trend in 2010.
Boeing pointed out that the airlines industry will see a rebound in passenger and cargo traffic revenue this year and should return to profitability in 2011. This would come as a welcome relief for Rockwell Collins, for it generated 42% of its fiscal 2009 revenue from aircraft manufacturing; airlines; and business jet owners/operators.
In the near-term however, risks regarding realignment of defense budget focus, pace of business jet market recovery, tepid air transport aftermarket sales growth and high research & development cost will affect the fortunes of Rockwell Collins, a Zacks #3 Rank (Hold) stock. We currently have a long-term (6 months and higher) Neutral recommendation on Rockwell Collins.
BOEING CO (BA): Free Stock Analysis Report
ROCKWELL COLLIN (COL): Free Stock Analysis Report
TEXTRON INC (TXT): Free Stock Analysis Report
Zacks Investment Research
Market News and Data brought to you by Benzinga APIsExpecting the tide, Rockwell expects revenue in the range of $4.8 billion – $5.0 billion, earnings per share in the range of $3.75 – $3.95, and cash flow from operations of $650 million – $750 million in fiscal 2011. Operating margin is expected to be in the range of 19.5% to 20.5%.
In the near-term, Rockwell reaffirmed its fiscal 2010 total sales guidance of about $4.7 billion with operating margin of about 19%, accumulating to earnings per share (EPS) of around $3.50.
Rockwell Flying High
Rockwell is a major supplier of aviation electronics systems, products and services to aircraft manufacturers and airlines in general -- The Boeing Company (BA) and Airbus in particular.
The commercial aviation space is bullish after Boeing recently forecasted that the air carriers in North America (U.S. and Canada) will take delivery of about 7,200 new airplanes over the next 20 years for an investment of $700 billion. The company also predicted that the commercial airliner fleet operating in the Oceania region of Australia, New Zealand and the South Pacific Islands will require 920 new airplanes worth $120 billion over the next 20 years.
Even growth is reflected in Africa, where passenger traffic grew by 13% during the first half of 2010 according to IATA. Even US cargo airlines are registering pre-recession margins in 2010 according to the IATA.
As a result, Rockwell expects its Commercial Systems business revenue to increase approximately 10% in fiscal 2011. Of this sales to aircraft Original Equipment Manufacturers (OEMs) would be boosted by the entry into service and ramp in production of Boeing's 787 and planned production rate increases of Airbus' A320.
Sales to business and regional jet aircraft OEMs are also projected to increase due to the introduction of Rockwell Collins avionics on Bombardier Inc.'s Global aircraft and bullish prospects for Textron Inc.'s (TXT) Cessna CJ-4 jet. Along with this the aftermarket sales are also expected to heat up due to continued increases in passenger traffic, airlines building additional capacity, and stronger airline profitability leading to higher demand for retrofit and spare products.
Aftermarket sales related to business and regional jet aircraft are expected to increase as a result of continued improvement in aircraft utilization and demand for retrofit products.
A Peek in the Past
In the quarter ending June 30, 2010, Rockwell Collins outpaced the Zacks Consensus Estimate of 88 cents by a penny. However, earnings per share shrunk 3 cents compared with the prior-year quarter. Total sales rose by 12% or $130 million, to $1.2 billion compared with sales of $1.1 billion in the year-ago quarter. Operating margin was 18.8% compared with 21.5% in the year-ago period.
A Pinch of Salt
Rockwell Collins bullishness, however, would be tempered with marginal growth expectation of its Government Systems business where topline is expected to grow only marginally, by approximately 2%. Government Systems provides communication and electronic systems, products and services for airborne and surface applications primarily to the U.S. Department of Defense and government agencies round the globe.
However, we have our reservations due to expected cutbacks over the U.S. defense budget looming large over the defense industry as a whole. Fortunes at the Government Systems segment are also likely to be affected by changes in defense funding profiles of countries like Italy, which are under pressure to reduce their defense spending.
The mixed trend will be reflected in sales related to airborne platforms and systems which expect increased government funding in the areas of rotary wing platform avionics, electronic systems integration and simulation and training systems. While sales related to systems and products for Surface Solutions applications are expected to be relatively flat as a result of the completion of several development programs and reduced procurement funding related to the U.S. military's involvement in Iraq.
Specific programs that will experience revenue declines during the year include the Joint Tactical Radio System programs as they transition from development to low rate initial production, lower volume following initial deliveries on an electronic system integration program for the California Highway Patrol, and reduced production rates for legacy Global Positioning System (GPS) products.
Estimates Yet to Catch Up
Rewinding the past we notice that the magnitude of estimate revisions indicates that the analysts were earlier apprehensive about Rockwell Collins' near-term prospects. In the near-term, though passenger traffic is expected to rise modestly, the market is unanimous that airlines total capacity has fallen primarily due to a reduction in utilization of out-of-warranty aircraft. This was bad news for the company, which generates a chunk of its revenue from aircraft retrofit programs.
The Street has yet to digest the bullish fiscal 2011 outlook for the company. However, the near-term picture is far from rosy for the company. The street discounting the volatility in capital markets, uncertainty about the strength of global economic recovery and the potential impact of tightening government budgets worldwide have mostly been waiting in the sidelines with their estimate post earnings.
The current Zacks Consensus Estimate for the ongoing quarter of 2010 is locked at 95 cents per share over the last 30 days. However, we expect this to change with a slew of estimate revisions after the street properly digests the news.
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. The dual-end market leads to higher volume sales, which create economies of scale that help attain cost-sensitive government contracts.
Rockwell Collins' fortunes are tied to the cyclical commercial aerospace market, which is currently undergoing a steady recovery. As per Boeing's Current Market Outlook (CMO) the world economy will continue to rebound, growing above the long-term trend in 2010.
Boeing pointed out that the airlines industry will see a rebound in passenger and cargo traffic revenue this year and should return to profitability in 2011. This would come as a welcome relief for Rockwell Collins, for it generated 42% of its fiscal 2009 revenue from aircraft manufacturing; airlines; and business jet owners/operators.
In the near-term however, risks regarding realignment of defense budget focus, pace of business jet market recovery, tepid air transport aftermarket sales growth and high research & development cost will affect the fortunes of Rockwell Collins, a Zacks #3 Rank (Hold) stock. We currently have a long-term (6 months and higher) Neutral recommendation on Rockwell Collins.
BOEING CO (BA): Free Stock Analysis Report
ROCKWELL COLLIN (COL): Free Stock Analysis Report
TEXTRON INC (TXT): Free Stock Analysis Report
Zacks Investment Research
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Loading...
Posted In: Aerospace & DefenseApparel RetailConsumer DiscretionaryFinancialsIndustrial ConglomeratesIndustrialsMortgage REIT's
Benzinga simplifies the market for smarter investing
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
Join Now: Free!
Already a member?Sign in
