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Rockwell Collins Inc. (COL - Analyst Report), the supplier of avionics and military equipment, outpaced the Zacks Consensus Estimate of 90 cents with earnings of 94 cents per share in the first quarter of fiscal year 2013 ending December 31, 2012. Results also came in higher than the year-ago quarterly earning per share of 86 cents.

Operational Performance

Rockwell Collins’ total sales fell 3% year over year to $1.06 billion, beating the Zacks Consensus Estimate of $1.04 billion. In the reported quarter, Government Systems sales slipped, partially offset by higher Commercial Systems sales. Total operating earnings decreased 2.3% to $213 million, or 20.1% of sales, in the reported quarter from $218 million, or 19.9% of sales, in the year-ago quarter.

Meanwhile, operating margins rose to 20.1% versus 19.9% in the year-ago period. Overall, Rockwell Collins reported net income of $132 million, a decrease of $2 million, or 1.5% as compared to the year-ago quarter.

Segmental Performance

Government Systems: Government Systems sales were $546 million, a decrease of 6% from $583 million reported for the same period last year.

By product category, Avionics sales decreased $9 million, or 3%, year over year, driven by lower sales from development programs, which are completing or transitioning to production. This was partially offset by higher tanker aircraft program sales.

Communication product sales declined $11 million, or 8%, driven by lower airborne and satellite communication product sales. This was partially offset by increased deliveries of ground network radios.

Surface solutions sales were $10 million, or 17%, lower than last year, resulting primarily from development programs either completing or transitioning to production. This was partially offset by increased international sales of Firestorm targeting systems.

Fewer deliveries of Defense Advanced GPS Receiver products drove a $7 million, or 13%, decline in Navigation product sales.

In the reported quarter, Government Systems operating earnings of $107 million resulted in an operating margin of 19.6%, compared with operating earnings of $117 million, and an operating margin of 20.1%, for the same period last year. The decrease in operating earnings and margin was primarily due to lower sales. This was partially offset by the completion of certain company-funded development programs related to GPS and communication products.

Commercial Systems: In the reported period, Commercial Systems sales of $516 million rose $5 million, or 1%, from sales of $511 million reported for the same period last year. 

By product category, sales related to aircraft original equipment manufacturers increased $17 million, or 6%, to $282 million year over year. This was primarily due to higher product deliveries for its commercial aerospace customers. This includes the likes of The Boeing Company (BA - Analyst Report) for its 787 series aircrafts, Airbus A330 series aircrafts and Canadian aircraft manufacturer Bombardier Inc.’s Global series aircrafts. This was partially offset by lower deliveries at the light end of the business jet market.

Aftermarket sales decreased $14 million to $207 million due to lower sales of spares year over year,

Commercial Systems operating earnings increased $5 million, or 5%, to $106 million, resulting in an operating margin of 20.5%, compared with operating earnings of $101 million, and an operating margin of 19.8%, for the same period a year ago. The increase in operating earnings and margin was primarily due to lower company-funded research and development expense.

However, total research and development investment increased $7 million as resources were redirected to pre-production engineering programs, including the Boeing 737 Max, Bombardier CSeries and Global 7000/8000.

Financial Condition

Rockwell Collins ended the quarter with cash and cash equivalents of $337 million. At year-end fiscal 2012, ending on September 30, 2012, the company had $335 million in cash. Long-term debt excluding current maturity was $573 million versus $779 million at fiscal-end 2012, ending on September 30, 2012.

Cash provided by operating activities for the first quarter of 2013 totaled $63 million, an increase of $127 million, compared to a $64 million use of cash in the first quarter of last year. The improvement in cash from operations was primarily driven by increased collections from customers, improved inventory performance and lower employee incentive compensation payments.

During the first quarter of 2013, the company repurchased 6 million shares of common stock at a total cost of $333 million. The company also paid a dividend on its common stock of $42 million, or 30 cents per share, in the first quarter of 2013.

Outlook

Rockwell Collins raised its fiscal 2013 earnings per share guidance range to $4.45–$4.65 versus its earlier range of $4.30–$4.50.

Rockwell Collins currently retains its Zacks Rank #3, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock.

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