Precision Castparts Beats, Outlook Up

Precision Castparts Corp. (PCP - Analyst Report) reported its fourth quarter fiscal 2012 earnings results, reporting earnings per share from continuing operations of $2.31 a share. Quarterly earnings were well above the Zacks Consensus Estimate of $2.27 a share and were also up 23.5% year over year.

Profits were primarily driven by strong contracts in the end markets and the company’s aerostructures, oil and gas businesses also performed well during the quarter.

Revenue Details

Total revenue grew 16% year over year to $1.95 billion compared to $1.37 billion in the prior-year quarter. Improved performance in aerospace and increased sales in general industries benefited the company’s results in the quarter.

Revenue was up across all the reporting segments, with all the three segments Investment Cast Products, Forged Products and Fastener showing strong growth.

Investment Cast Products revenue surged by 8.0% year over year to $602.7 million. During the quarter, contractual material pass-through pricing accounted for about $20 million of sales, versus approximately $18 million in the prior year quarter.

The segment's aerospace revenue grew approximately 10%, driven by higher build rates of commercial aircraft, including the 787 and the greater frequency of takeoffs and landings. Industrial gas turbine (IGT) sales grew approximately 16% year over year, primarily due to high spares activity driven by positive OEM sales.

However, the increases in aerospace and IGT sales were partially offset by declines in general industrial and other sales.

Forged Products revenue was up 11.0% to $858.1 million. Revenue growth was driven by increased volume, while the average metal selling prices from the segment's three primary mills increased sales by approximately $15 million year over year.

The segment also reported robust aerospace activity, with fourth quarter fiscal 2012 base aerospace sales improving 14% and total aerospace sales increasing by about 30% over the prior year quarter.

The segment also reported gains in market share that increased the segment's total IGT sales by more than 15% year over year. Oil & gas sales continued to grow through the fourth quarter, reporting approximately 40% increase year over year.

Again decline in general industrial sales was a drag on the segment, as it used more of its assets to supply its component manufacturing operations, with inter-company activity increasing by about 30% over the comparable prior-year quarter.

Fastener Products revenue increased a robust 42% to $487.9 million. Base aerospace sales grew 15% year over year, driven by encouraging pick-up in orders for the segment's critical aerospace core fastener products in the past two quarters of the fiscal year. Further, the acquisition of Primus also pushed up the overall segment revenue.

Profit

Consolidated segment operating income grew 24% to $497.8 million in the fourth quarter. This was about 25.5% of sales, compared to consolidated segment operating income of $401.4 million or 24.0% of sales in the comparable prior year quarter.

Balance Sheet

Exiting the quarter, Precision Castparts had cash balance of $698.7 million with total debt of $208.2 million and total equity of $8,364.8 million. Total capital expenditure incurred by the company in the quarter amounted to $88.5 million.

Outlook

With the improving aerospace and IGT sales and orders, the company sees opportunities for further market penetration, providing upside potential for the next quarter. The acquisitions of Primus and RathGibson and the recently acquired Centra all are expected the company to give the required boost in the very strong aerospace market, given the ramp-up of the 787 program by Boeing (BA - Analyst Report) and increase in the base production aerostructures build-rates for both Boeing and Airbus.

Precision Castparts currently hold a Zacks Rank # 3 which implies a short term ‘Hold’ on the stock.