Rockwell Collins Second Quarter 2013 Earnings Per Share Increase 7%

CEDAR RAPIDS, Iowa—(BUSINESS WIRE)—Rockwell Collins, Inc. (NYSE: COL) today reported second quarter fiscal year 2013 earnings per share of $1.17, $0.08 higher than earnings per share of $1.09 in the prior year. The 7% increase in earnings per share was due to the favorable effect of the company’s share repurchase program. Net income for the second quarter of 2013 was $161 million, the same as the second quarter last year.

“Second quarter results were consistent with our expectations and I continue to feel very good about the company’s operating performance given the overall economic conditions and a dynamic defense market environment”
For the second quarter of 2013, the company reported a 3% reduction in total sales to $1.13 billion with total segment operating earnings of $229 million, or 20.2 percent of sales. Total segment operating earnings and margin in the second quarter increased $5 million, or 100 basis points, to 21.7 percent of sales, when excluding the impact of $16 million in incremental compensation costs resulting from the favorable impact of the Federal R&D tax credit extension. Specifics are detailed in the Non-GAAP table at the end of this release.

Cash provided by operating activities for the first six months of 2013 totaled $179 million, an increase of $134 million compared to the $45 million reported last year. The improvement in cash from operations was primarily driven by improved inventory performance, lower tax payments and lower compensation payments.

“Second quarter results were consistent with our expectations and I continue to feel very good about the company’s operating performance given the overall economic conditions and a dynamic defense market environment,” said Rockwell Collins Chairman and Chief Executive Officer, Clay Jones. “Highlighting this performance was a 300% improvement in operating cash flow compared to last year and a second straight quarterly increase in core operating margins, despite declining sales.”

Jones went on to state, “Fortunately, we included the impacts of sequestration in our original fiscal year guidance and, while the full impact is not yet known, our performance to date has allowed us to increase the revenue outlook for Government Systems. With the expected commercial revenue growth in the second half of the year, I have growing confidence in our ability to meet or exceed guidance projections.”

Following is a discussion of fiscal year 2013 second quarter sales and earnings for each business segment.

Commercial Systems

Commercial Systems, which provides aviation electronics systems, products and services to air transport, business and regional aircraft manufacturers and airlines worldwide, achieved 2013 second quarter results as summarized below.

Sales to aircraft original equipment manufacturers increased from higher deliveries for the Boeing 787 and 737, and the Bombardier Global and Challenger aircraft.
Aftermarket sales increased from higher business jet retrofits, partially offset by lower air transport service and support and higher spares sales last year.
Operating earnings and margin increased primarily due to higher sales volume. Increased compensation costs were offset by lower company-funded research and development expense. Although company-funded research and development investment declined, total research and development investment, which includes pre-production engineering programs, increased $12 million driven by the Boeing 737 Max, Bombardier CSeries and Airbus A350 programs.
Government Systems

Government Systems provides a broad range of 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. Results from the second quarter of 2013 are summarized below.

Avionics sales decreased from lower sales for development programs, which are completing or transitioning to production, and reduced sales for Eurofighter and helmet mounted displays for various fixed wing aircraft.
Communication product sales declined due to lower satellite communication product sales, mostly offset by increased deliveries of JTRS Manpack radios.
Surface solutions sales declined primarily from development programs either completing or transitioning to production, offset by increased international sales of Firestorm targeting systems.
Navigation product sales declined due to fewer deliveries of Defense Advanced GPS Receiver products.
Operating earnings and margin decreased primarily due to lower sales, the absence of a favorable warranty adjustment recorded in the prior year and higher compensation costs, partially offset by the benefit from cost reduction actions and the completion of certain company-funded development programs.
Corporate and Financial Highlights

General corporate expenses not allocated to the company’s business segments increased $4 million to $17 million primarily driven by increased compensation and pension expenses.

The company’s effective income tax rate was 18.3% for the second quarter of 2013 compared to a rate of 24.4% for the same period last year. The lower tax rate was due to the retroactive extension of the Federal R&D tax credit, partially offset by the absence of a favorable adjustment in the prior year related to the completion of certain IRS tax audits. This net tax benefit was offset by incremental compensation costs included in profit before tax. For a reconciliation of the net income and earnings per share impacts of these items, see the Non-GAAP table at the end of this press release.

During the second quarter of 2013, the company repurchased 1.4 million shares of common stock at a total cost of $84 million. In February of 2013, the company’s Board of Directors authorized an additional $500 million in share repurchases. The company also paid a dividend on its common stock of 30 cents per share, or $41 million, in the second quarter of 2013.

Rockwell Collins today announced that Chairman and CEO Clay Jones, 64, has informed the company’s board of directors of his plans to retire as CEO effective July 31, after almost 34 years of service. Rockwell Collins President Kelly Ortberg, 52, is expected to succeed Jones as CEO at that time. Jones will remain on the company’s board of directors as non-executive chairman.

Fiscal Year 2013 Outlook

Total research & development investment guidance was lowered to align our spend profile for certain customer-funded and pre-production engineering programs. We now anticipate pre-production engineering investment to increase by about $170 million in fiscal year 2013.