Rockwell Collins Misses

Rockwell Collins Inc. (COL - Snapshot Report) missed the Zacks Consensus earnings per share (EPS) estimate 4 cents and reported 84 cents per share in the fourth quarter of fiscal 2009 (ended Sept. 30). It also fell 29 cents short of the year-ago figure of $1.13 in the fourth quarter of fiscal 2008.

The company clocked EPS of $3.73 in fiscal 2009, lower than both the Zacks Consensus Estimate of $3.76 and the fiscal 2008 EPS of $4.16. Likewise, revenues also fell 6.8% to $1.2 billion in the reported quarter from $1.3 billion in the fourth quarter of fiscal 2008. Fiscal 2009 revenues also fell 6.3% to $4.5 billion from $4.8 billion in fiscal 2008.

Segment Performance

Government Systems clocked quarterly sales of $741 million, an increase of $105 million or 17%, compared to the $636 million in the year-ago quarter. Airborne Solutions’ sales increased $16 million, or 3%, to $475 million. Surface Solutions’ sales increased $89 million, or 50%, to $266 million.

Government Systems’ operating earnings in the reported quarter increased 27% to $159 million, resulting in an operating margin of 21.5%, compared to operating earnings of $125 million, or an operating margin of 19.7% for the year-ago quarter. The increase in operating earnings and margin were primarily due to higher sales and lower employee incentive compensation costs, partially offset by an increase in research and development costs.

Commercial Systems clocked quarterly sales of $449 million, a decrease of $192 million or 30%, compared to sales of $641 million reported for the year-ago quarter. Sales related to aircraft OEMs decreased $113 million (34%) to $220 million, primarily as a result of reduced production rates at business jet OEMs.

Aftermarket sales decreased $60 million or 23%, to $205 million due primarily to lower retrofit and spares sales and reduced avionics service and support revenues. Sales of wide-body in-flight entertainment products and systems decreased $19 million, or 44%, to $24 million compared to the prior-year period.

Commercial Systems’ quarterly operating earnings decreased to $71 million, resulting in an operating margin of 15.8%, compared to operating earnings of $144 million, or an operating margin of 22.5%, for the year-ago period. The decrease in operating earnings was due primarily to lower sales volumes.

Rockwell Collins reported cash and cash equivalents of $235 million at the end of fiscal 2009 from $175 million at the end of fiscal 2008. The company reported $633 million in cash from operating activities at the end of fiscal 2009, compared to $620 million at the end of fiscal 2008. Long-term debt increased to $532 million at the end of fiscal 2009 from $228 billion at the end of fiscal 2008.

Rockwell Collins has reaffirmed its EPS guidance range of $3.35 - $3.55 for fiscal 2010. This is in line with the Zacks Consensus Estimate of $3.48 per share for fiscal 2010. We maintain our market Neutral recommendation on the shares.