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Rockwell Collins (COL) Up 3.7% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Rockwell Collins, Inc. (COL - Free Report) . Shares have added about 3.7% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is COL due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Rockwell Collins Beats on Q2 Earnings, Sales Up Y/Y

Rockwell Collins reported results for second-quarter fiscal 2018 (ended Mar 31, 2018). The company’s adjusted earnings per share of $1.81 beat the Zacks Consensus Estimate of $1.53 by 3.4%. Earnings grew 30.2% from $1.39 a year ago.

Excluding one-time adjustments, the company’s earnings of $1.43 per share reflected a year-over-year improvement of 12.6%.

The year-over-year upside in bottom line was primarily driven by robust revenue growth.

Revenues

In the reported quarter, Rockwell Collins’ total sales were $2,180 million, which beat the Zacks Consensus Estimate of $2,141 million by 1.8%. Revenues grew 62.4% year over year, driven by higher sales at all segments, except Information Management Services unit.

Excluding revenues worth $776 million from the acquisition of B/E Aerospace, the company witnessed 5% organic sales growth.

Operational Highlights

Total segment operating income during the quarter was $428 million, up 51.8% from $282 million in the year-ago quarter.

Rockwell Collins’ total research and development investment (including increase in pre-production engineering costs) was $346 million, up 35.7%. The figure represented 15.9% of total sales compared with 19% in the year-ago quarter.

Interest expense during the quarter was $66 million compared with $25 million in the year-ago quarter.

Segment Performance

Commercial Systems: In the quarter under review, sales of $644 million were up 8% year over year, owing to higher original equipment and aftermarket sales.

Operating earnings for the quarter were $151 million compared with $132 million in the year-ago quarter. Consequently, operating margin expanded 120 basis points (bps) to 23.4%.

Government Systems: The segment reported sales of $654 million, up 16% on the back of higher communication and navigation sales.

Operating earnings for the quarter were $131 million, up 15% from $114 million in the year-ago quarter. However, operating margin contracted 20 bps to 20%.

Information Management Services: Segment sales were $181 million, down 1% from $183 million in the year-ago quarter, on account of decline in non-aviation sales.

Operating earnings for the quarter were $41 million, up from $36 million in the year-ago period. Operating margin was 22.7% compared with 19.7% a year ago. The upside was driven by favorable resolution of certain claims associated with a divested business.

Financial Condition

As of Mar 31, 2018, Rockwell Collins’ cash and cash equivalents were $668 million compared with $703 million as of Sep 30, 2017.

Long-term debt (net) was $6,456 million as of Mar 31, 2018, up from $6,676 million as of Sep 30, 2017.

Cash used for operating activities at the end of the quarter was $77 million, compared with cash provided by operating activities of $1 million in the prior-year quarter.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

Rockwell Collins, Inc. Price and Consensus

VGM Scores

At this time, COL has a nice Growth Score of B, however its Momentum is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for growth and to a lesser degree value.

Outlook

COL has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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