Rockwell Collins posts higher earnings, layoffs still possible

CEO Clay Jones said potential cuts would be felt in Cedar Rapids, Eastern Iowa

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Economic conditions in the United States and around the world might remain unsettled, but Clay Jones says Rockwell Collins has done its best to be prepared.

Jones, Rockwell Collins chairman and CEO, said Friday the avionics manufacturer was able to take advantage of a business tax credit extended in the Congress's New Year's Day budget deal that averted the so-called fiscal cliff. But he added the company continues to plan for potential layoffs if Congress cannot reach an agreement on budget cuts and sequester or across-the-board budget cuts slash defense contracts.

Cuts in defense spending, known as sequestration, could begin in March.

"Despite continued government and economic uncertainty, our focus on the things we can control such as costs, capital deployment and investments are paying off," Jones said. "In the first quarter, we expanded operating margins, reduced our share count by 4 percent (through buyback), and won a number of programs to enhance future growth."

Jones reiterated the possible loss of more than 1,000 jobs due to defense spending cuts, as reported in late 2012.

"We have suggested specifically in Government Systems that the business would be down 10 percent this year or $120 million," Jones said in a telephone interview Friday morning. "Roughly half of that $120 million would be directly attributable to our estimate of sequestration, which includes about 300 people in Government Systems.

"While we don't know how this will turn out, we felt the only thing we could do is make a good faith estimate and be honest with our people. We wanted to let them know what the impact is going to be in those areas that we know about," he said.

"Unfortunately there are many areas that we don't know about. I would like to be able to tell them more, but we can't at this time."

With half of the company's work force in Cedar Rapids and Eastern Iowa, Jones said a corresponding percentage of any cuts would be felt here.

Jones said Rockwell Collins has enjoyed strong growth in foreign government systems contracts as Brazil, India and countries in the Middle East have increased their defense spending. He said the company will continue to pursue joint ventures to gain even more market share in foreign markets.

The Commercial Systems division, which provides aviation electronics systems, products and services to business and regional aircraft manufacturers and airlines worldwide, achieved first quarter 2013 sales of $516 million, an increase of $5 million, or 1 percent, compared with sales of $511 million in same period last year.

Sales related to aircraft original equipment manufacturers increased $17 million, or 6 percent, to $282 million — driven by increased sales resulting from higher production rates for the Bombardier Globals, Boeing 787 and Airbus A330 aircraft, partially offset by lower deliveries in the business jet market.

Jones said the Boeing 787 grounding this week to determine the cause of battery overheating and fuel leaks has not affected Rockwell Collins. Noting that none of the company's equipment is involved, Jones expressed confidence that Boeing will remedy the problem in a timely manner and that production of the aircraft will continue.

Rockwell Collins is matching Boeing 787 production of four planes per month. The company expects the number to accelerate beginning in its fourth fiscal quarter.

Government Systems sales in the first quarter of 2013 were $546 million, a decrease of 6 percent, compared with $583 million reported for the same period last year. The division provides a electronic products, systems and services to customers including the U.S. Department of Defense, other government agencies, civil agencies, defense contractors and ministries of defense around the world.

Jones said Rockwell Collins expects to spend $1 billion on research and development in the current fiscal year. He said the company plans to increase pre-production R&D investment for the Boeing 737 Max, Bombardier CSeries and Global 7000/8000 programs.

"We are off to a solid start in this year of transition for our company and should see improving performance throughout the year," Jones said. "Fortunately we had already incorporated the impact of sequestration in our annual guidance and expect a greater benefit from our fiscal 2012 restructuring actions in subsequent quarters as well.

"We are increasingly confident that we can meet or exceed our financial expectations."

The Numbers

Rockwell Collins on Friday reported higher first-quarter earnings on lower overall sales, but still topped analysts' projections while raising its profit forecast for the fiscal year.

The Cedar Rapids-based avionics and communications supplier recorded net income of $132 million, or 94 cents per share, compared with $130 million, or 86 cents per share, in the first quarter of fiscal 2012. Sales slipped 3 percent to $1.06 billion, from $1.09 billion in the same period of fiscal 2012.

Analysts, on average, expected a profit of 89 cents per share on $1.04 billion in revenue, according to FactSet.

Rockwell Collins projected  full-year sales of between $4.6 billion and $4.7 billion. It also raised its earnings-per-share forecast to between $4.45 to $4.65, from $4.30 to $4.50.


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