Precision Closes Deals

Recently, Precision Castparts Corp. (PCP - Snapshot Report), a diversified manufacturer of complex metal components and products, has completed its acquisition of Carlton Forge Works in Paramount, California. Carlton is a leading manufacturer of seamless rolled rings of nickel, titanium and steel for utilization primarily in aircraft engine (80%) and gas turbine (20%) applications. Precision Castparts has also acquired Arcturus Manufacturing Corporation, a hammer forging operation in Oxnard, California. 

Precision acquired both Carlton and Arcturus for $850 million. The acquisitions are all-cash deals and are financed primarily through current cash balances and small levels of debt. The transactions will be included in Precision’s Forged Products segment, which accounted for about 42% of the company’s sales in the last quarter of fiscal 2009. Precision generated about 24% of its margins from this segment. Management expects the acquisitions to be immediately accretive to earnings. 

Precision is among the leading manufacturers of forged components for the aerospace and power generation markets. In addition, the company is the world’s largest and most diversified producer of nickel-based alloys, which are used to produce forged components for aerospace and non-aerospace markets, including products for oil and gas, chemical processing and pollution control applications. Precision has broadened its product offering by adding rolled ring products through the acquisition. 

However, in the Forged Products segment, Precision faces tough competition from Ladish Company Inc. (LDSH - Snapshot Report), Fortech S.A. and Thyssen AG, Alcoa Inc. (AA - Snapshot Report) and Schultz Steel Company for aerospace turbine and aerospace structural products. Vallourec & Mannesmann Tubes and Sumitomo Corporation are Precision’s major competitors for energy products and Allegheny Technologies Inc. (ATI - Snapshot Report), Carpenter Technology Corporation (CRS - Snapshot Report) and Haynes International Inc. (HAYN - Snapshot Report) for nickel-based alloys and super-alloys. 

Precision may also face increased competition from international companies as customers seek lower-cost sources of supply. We maintain our Neutral recommendation on the stock.