Rockwell Collins earnings lower on weaker defense sales

Progress made on critical commercial, government systems

George Ford
Published: October 26 2013 | 6:00 am - Updated: 28 March 2014 | 10:27 pm in
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Rockwell Collins on Friday reported a lower-than-expected quarterly profit, hurt by weaker defense sales as the nation curbs military spending.

The Cedar Rapids-based avionics and communications provider posted net income of $175 million, or $1.28 a share, for  the fiscal fourth quarter that ended on Sept. 30, compared with $152 million, or $1.06 a share, in the same period last year.

Analysts were expecting $1.31 a share, according to Thomson Reuters.

Sales fell 1 percent to $1.25 billion from $1.27 billion in the fourth quarter of fiscal 2012. Commercial system sales rose 3 percent, while government segment sales declined 5 percent.

For fiscal year 2013, Rockwell Collins reported net income of $632 million, or $4.58 a share, compared with $609 million, or $4.15 a share, in fiscal year 2012. Sales slipped 2 percent to $4.61 billion from $4.7 billion in fiscal year 2012.

Rockwell Collins said the lower sales were due to an 8 percent decrease in government systems sales, partially offset by a 4 percent  increase in commercial systems sales. Kelly Ortberg, Rockwell Collins president and chief executive officer, said economic uncertainty continues to affect government sales.

"I don't think the last 30 days of food fight has given anyone confidence that we have a Congress willing to compromise and come up with a forecast that we can all build our business around," Ortberg said. "In the end, we have kind of planned for the worst and hoped for the best."

Ortberg said Rockwell Collins has built a $200 million impact from sequestration and related budget cuts into its business plan for  fiscal year 2014 . He said two government contracts carry some risk for the company.

"We are providing the radio for the HMS, which stands for handheld man pack and small form factor," Ortberg said. "It's a new networked radio for the U.S. Army. We're in low rate initial production and we're expecting the second lot of low rate initial production in the first quarter of fiscal year 2014.

"The U.S. Army is trying to understand its budget environment and whether it wants to award another low rate initial production, or wait and hold a production competition later on."

Ortberg said the other program is the KC-10 tanker modernization program for the U.S. Air Force.

"The U.S. Air Force has said it is considering accelerating retirement of the KC-1o tanker fleet," Ortberg said. "If they do   that, it could potential delay or not go forward with the modernization program that we're doing for the KC-10.

"We said our government business would be down mid- to high single digits in fiscal year 2014. If these programs get canceled or stopped, we will be closer to the high single digits, but if they survive, we will be closer to the low single digits."

Ortberg said economic uncertainty also is affecting commercial systems sales in the area of business jets. Increased sales to aircraft manufacturers Bombardier Global and Challenger aircraft in the most recent quarter were partially offset by fewer deliveries for Cessna business jets.

Ortberg said the pending acquisition of ARINC will add a well-established business in the fast growing information management space. He said a significant number of new aircraft that include more Rockwell Collins content will be entering service.

Boeing reportedly has secured commitments for around 200 of its 737Max aircraft from multiple Chinese customers. The deal, worth a combined $20.7 billion at list prices, would benefit Rockwell Collins because it supplies the cockpit displays for the aircraft.

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