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Rockwell Collins pegs biz-jet recovery for 2012
January 24, 2011
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  • By Christopher Hinton

    January 20, 2011

    NEW YORK (MarketWatch) – Rockwell Collins Corp. is seeing early signs of recovery in the business jet market, the chief executive of the aviation-equipment provider said Thursday.

    After a two-year lull in production, companies that build business jets are telling the Cedar Rapids, Iowa-based company (NYSE:COL) to get ready for build-rate increases. Customers’ orders have yet to support that optimism, but that’s likely to change by mid-2011.

    “The used business-jet market is getting cleared out, and manufacturers are getting ready to increase production … by 2012, is our current projection,” said Rockwell Collins Chairman and CEO Clay Jones in an interview with MarketWatch.

    An uptick in demand would be good news for General Dynamics Corp. (NYSE:GD) and Textron Inc. (NYSE:TXT) , which have had to decrease production rates for their Gulfstream and Cessna business jets, respectively.

    Typically, there is an eight-quarter lag on business-jet orders after corporate profits bottom out, according to Gleacher & Co. analyst Peter Arment. Assuming that happened as early as the second half of 2009, that would put Jones’s assumption on target.

    “However, Rockwell Collins should benefit from the new deliveries for new programs such as the Gulfstream G250, G650 and Embraer (NYSE:ERJ) Legacy 500,” Arment said.

    Rockwell Collins’ sales of electronic equipment for business and regional jets, as well as related services, have declined sharply since its peak, shrinking to 26% of the company’s total commercial systems sales from 48% in 2008.

    For the company’s first quarter ended Dec. 31, sales in it commercial systems business – which includes equipment for both business jets and large commercial aircraft – grew for the first time since 2007, up 12% from the same period in fiscal 2010.

    Shares of Rockwell Collins, trading little changed on the session, are up nearly 13% for the year.

    Quarterly gains

    Earlier Thursday, Rockwell Collins reported net earnings of $151 million, or 96 cents a share, in the latest quarter, up from $121 million, or 76 cents, earned in the year-ago period. Sales rose 8% to $1.11 billion.

    Analysts polled by FactSet Research had been looking for earnings of 88 cents a share, on average, with sales pegged at $1.11 billion.

    Giving a boost to the bottom line was a research-and-development tax credit, which added about 9 cents to per-share earnings. It also raised the company’s fiscal-year profit outlook to a range of $3.85 to $4.05 a share, from a previous range of $3.75 to $3.95 a share.

    The analyst consensus is for earnings of $3.96 a share for the year.

    Jones said the tax credit will help Rockwell Collins add 800 jobs, including 550 engineering jobs, increasing the company’s workforce by 4%.

    Weighing on guidance are the two programs frequently postponed: Boeing Co.’s 787 and a U.S. military contract for new aerial-refueling tankers.

    The award for the KC-X tanker was most recently pushed back from December to February, eliminating about $20 million of projected sales for the recent period, Jones said.

    Rockwell Collins has equipment on both the Boeing (NYSE:BA) and the EADS (EURONEXT:FR:EAD) (PINK:EADSY) bids for the KC-X.

    For the 787 program, Rockwell Collins had predicted abut $60 million in sales this fiscal year, but the plane’s most recent delivery delay, from the calendar-year first quarter to the third quarter, reduced that by $15 million to $20 million.

    Jones said he was “hopeful” that the 787, already more than three years behind schedule, would not be delayed an eighth time. See more on the most recent delay in the 787’s delivery timetable announced by Boeing.

    In addition to the 787 and KC-X, final funding approval for dozens of U.S. military programs for which Rockwell Collins contributes have yet to be passed.

    THE WALL STREET JOURNAL2011-01-20false