Precision Castparts Lags Estimates

Precision Castparts Corp. (PCP) reported financial results for the second quarter of fiscal 2013, with earnings from continuing operations of $2.28 per share missing the Zacks Consensus Estimate of $2.35 by 2.9%.

However, earnings were up 11.8% year over year. Earnings were primarily driven by contributions from recent acquisitions, profits in commercial aerospace production and stable demand for industrial gas turbine spares.

Revenue Details

Total revenue grew 8.4% year over year to $1.93 billion compared with $1.78 billion in the prior-year quarter, primarily driven by accretive acquisitions done by the company in the recent past. The company reported revenue growth in two out of its three operating segments which contributed to the top line growth. However, the downtime in the company’s Forged Products segment partially offset the top line growth.

Segment Results

Investment Cast Products revenue grew 6.8% year over year to $612.4 million. Revenue growth was primarily attributable to the steady ramp up of the Boeing 787 activity. Moreover, the Industrial gas turbine sales grew 17% year over year, primarily driven by higher spares activity.

Forged Products revenue declined 4.7% year over year to $761.2 million. The decline was primarily attributable severe downtime in the segments press. During the quarter, the segment witnessed repairs to its 29,000 ton press in Houston, because of which there were delays in meeting specific customer demands.

In addition, the segment reported delays to the re-build of its 50,000 ton press in Grafton. Last but not the least the segment also had to complete repairs in the principal Carlton ring-rolling press.

Although the 29,000 ton press at Houston and the 50,000 ton press at Grafton are the primary volume churners for the company, the delays did not impact any of Precision Castpatrs major purchase order.

During the quarter, Precision Castparts renamed its Fasteners segment to Airframe Products. The segment name was changed to better reflect the combination the segment carries of fasteners and the aerospace products. Airframe Products revenue increased a robust 35.8% year over year to $556.9 million.

Organic aerospace sales grew 15% year over year, driven by stable increase of commercial backlogs and further closing of the gap between 787 fastener orders and the current Boeing production rate. Further, the acquisition of Primus, Centra Industries and Klune Industries also drove the segment revenue.

Profit

Consolidated operating income surged 13.6% year over year to $498.4 million (25.8% of sales) in the reported quarter. This represents an increase from $439.1 million (24.6% of sales) in the comparable prior-year quarter.

Balance Sheet

Exiting the quarter, Precision Castparts had a cash balance of $193 million which was down 72.3% compared to $698.7 million as on April 1, 2012. The decline is primarily attributable to higher working capital requirements.

As on September 30, 2012, Precision Castparts had total debt of $666 million increasing 220% versus $208.2 as on April 1, 2012. The significant increase in debt is due to the acquisitions. Total capital expenditure incurred by the company in the quarter amounted to $64.2 million.

Outlook

Concurrent with the earnings release, the company provided outlook about its performance in the year ahead. Base commercial aerospace is expected to grow in the coming 12 to 14 months, driven primarily by Boeing 787 ramp up.

Futhermore, IGT is also showing good momentum in its aftermarket backlog as the company is shipping out large quantities of nickel-based, severe service tubular product over the upcoming four quarters. The company expects its major end markets to drive organic growth.

Precision Castparts, which faces stiff competition from Mueller Industries Inc. ( MLI - Snapshot Report ) , has a Zacks Rank of #4, implying a short-term Sell rating on the stock.