Goodrich Tops but Cuts Outlook

Goodrich Corporation (GR - Snapshot Report) reported impressive third quarter results, with earnings per share (EPS) of $1.12 crossing the Zacks Consensus Estimate of $1.02. The upsurge came through lower costs and higher defense sales. However, it failed to cross the year-ago result of $1.32.

Sales for the reported quarter decreased 7% to $1.6 billion from $1.8 billion in the year-ago quarter. The decrease is attributable to reductions of approximately $33 million of sales related to foreign currency exchange rate impacts, approximately $34 million for lower reported sales resulting from the formation of the engine controls joint venture with Rolls-Royce and the impact of current economic conditions on the company's major market channels.

In the quarter, Actuation and Landing Systems segment sales fell 5% year-over-year while Nacelles and Interior Systems segment sales fell 6%. However, the biggest jolt came from Electronic System segment, where sales fell 11% year-over-year.

The bottom line also fell heavily with operating income reducing by 19% year-over-year. The downside came from 25% lower operating income in the Actuation and Landing Systems segment. This was due to lower sales from wheels and brakes business. The Nacelles and Interior Systems segment also witnessed 19% lower operating income due to lower interiors and aero structure business sales. Lastly the Electronic Systems segment operating income also fell 11% due to lower sales volume and unfavorable product mix.

Goodrich reaffirmed its fiscal 2009 EPS outlook in the range of $4.60 – $4.75. However, it revised its revenue outlook for the fiscal to $6.7 billion from the earlier guidance of $6.9 billion. The revision was to reflect volatile foreign currency exchange rates and lower sales from engine controls due to the formation of a joint venture. For fiscal 2010, the company expects EPS in the range of $4.15 – $4.40, with revenue of approximately $7 billion. We maintain our market Neutral recommendation on the shares.