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Rockwell Provides FY14 Guidance

Zacks Equity Research

Rockwell Collins, Inc. (COL) has provided an update on its fiscal year 2014 guidance and reaffirmed its guidance for 2013.

The company expects revenue in the range of $4.5 billion to $4.6 billion and earnings per share in the range of $4.30 to $4.50 for FY14. In FY14, total segment operating margins are expected in the range of 21.0% to 22.0% and cash flow from operations in the range of $550 million to $650 million. The guidance excludes the impact of the proposed acquisition of ARINC Inc. The transaction will be closed after receiving regulatory approval. The company plans to update its guidance once the transaction is closed.

The company expects research and development (R&D) investment to be approximately $950 million in 2014.

Market conditions in fiscal 2014 are expected to remain flat with FY13. The company expects to experience strong revenue growth at its air transport business driven by the 787 and A350 aircraft. However, the company expects a slight decline in business jet revenue. With the completion of the ARINC acquisition, a stabilizing defense market, continued robust air transport market and the benefits of new aircraft entering into service across commercial markets, the company expects to return to growth in 2015.

In FY14, the company expects revenue from Commercial Systems to increase by mid-single digits year over year. However, it expects revenue from Government Systems to decrease by mid-to-high single digits compared to 2013. The decline reflects sequestration cuts of $200 million partially offset by an increase in international defense sales and increased production in Avionics, including KC-10 and E-6B aircraft upgrades as well as higher deliveries for the JHMCS and JSF helmets.

Rockwell Collins maintained its FY13 guidance as provided on its third quarter fiscal year 2013 earnings call in Jul 2013. The company expects earnings per share in the range of $4.55–$4.60 and total sales to be around $4.65 billion. The R&D investment forecast is also expected to be approximately $950 million. Cash flow from operations is expected to be around $600 million.

In Jul 2013, Rockwell Collins posted third quarter fiscal year 2013 earnings of $1.20 per share, surpassing the Zacks Consensus Estimate of $1.15 by 4.3% and 5.3% above the year-ago figure of $1.14. Total sales slipped 3.3% year over year to $1.17 billion. However, the figure came in line with the Zacks Consensus Estimate.

The Zacks Consensus Estimate for the fourth quarter is expected to be flat year over year at $1.32 per share. For the current fiscal year, the Zacks Consensus Estimate is $4.60 per share, up 4.30% year over year.

Rockwell Collins is the foremost global supplier of communications and avionics equipment for both commercial and military customers. Its balanced exposure to both types of customers allows the company to use government funding to develop products for the dual-end market. Despite these positives, we remain concerned about the company’s short-cycle products, the U.S. government’s delayed funding authorizations, program execution risk, dependence on international sales, high exposure to fixed price contracts and high research & development overhead. The company presently retains a short-term Zacks Rank #3 (Hold).

Among the stocks worth considering in the space are Alliant Techsystems Inc. (ATK), Elbit Systems Ltd. (ESLT) and B/E Aerospace Inc. (BEAV). While Alliant Techsystems and Elbit Systems hold a Zacks Rank #1 (Strong Buy), B/E Aerospace carries a Zacks Rank #2 (Buy).

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