Strong 4Q Earnings for Precision
Precision Castparts Corp. (PCP) reported financial results for the fourth quarter and fiscal 2013. Earnings for the quarter came in at $2.82 per share, surpassing the Zacks Consensus Estimate of $2.77 by 1.8%. Quarterly earnings were up 22.1% year over year from $2.31 in the fourth quarter of 2012.
Profits were primarily driven by strong contributions from recent acquisitions, profits in commercial aerospace production and stable demand for industrial gas turbine spares.
Revenue Details
Total revenue grew 25.3% year over year to $2.44 billion from $2.0 billion in the prior-year quarter, primarily driven by accretive acquisitions clinched in the recent past. The company reported revenue growth across three of its operating segments, which contributed to the top-line growth.
Segment Results
Investment Cast Products revenues grew 5.5% year over year to $635.7 million. Revenue growth was primarily driven by the segment's aerospace OEM business that is associated with current commercial aircraft production rates and future ramps in aircraft build schedules. These factors are expected to be the catalyst for growth for approximately six months, going forward. On the power side, the IGT division reported revenue growth of more than 8% over the prior-year period, attributable to strong spares sales and robust OEM activity.
Forged Products revenues grew 30.8% year over year to $1.1 billion. The robust increase in revenue was driven primarily by the Timet acquisition, which was the largest driver of the sales growth in the fourth quarter. In addition, throughput improved on the 29,000-ton press, which increased aerospace sales at the Houston plant by about 25% quarter on quarter. Further, downhole casing for the oil and gas market also continued to show a robust shipping profile consequently for the second quarter.
Airframe Products revenues increased a robust 40.4% year over year to $685.1 million. This segment reported strong organic growth in commercial aerospace with a 10% increase year over year. This reflects Airframe Products' presence across all major large commercial aircraft platforms. The segment's core fastener production rates continued to climb at a sluggish pace, while the aerostructures businesses are showing solid gains in both sales and operating income. The recent acquisitions made by the company are providing Airframe Products with new capabilities and capacity, all of which will benefit both customers and the segment given the higher volume flow.
Profit
Consolidated operating income surged 22.5% year over year to $608.9 million (25.0% of sales) in the reported quarter. This represents an increase from $497.0 million (25.5% of sales) in the comparable prior-year quarter. Margins during the quarter increased to 25.7% from 25.6% in the comparable prior-year period. Margin growth was also driven by strong synergies from the Timet acquisition.
Balance Sheet
Exiting the year, Precision Castparts had a cash balance of $280.2 million, which was down 59.9% from $698.7 million as on Apr 1, 2012. The decline is primarily attributable to acquisitions, stock repurchases and debt repayments.
As on Mar 31, 2013, Precision Castparts had total debt of $3.8 billion versus $208.2 million as on April 1, 2012. The significant rise in debts is due to the acquisitions. Total capital expenditure incurred by the company in the quarter amounted to $118.1 million.
Outlook
Concurrent with the earnings release, the company provided an outlook on its performance in the year ahead. Base commercial aerospace is expected to grow in the coming 12 to 14 months, driven primarily by the Boeing 787 ramp up.
Furthermore, IGT is also showing good momentum in its aftermarket backlog as the company is shipping out large quantities of nickel-based, severe service tubular product over the upcoming four quarters. The company expects its major end markets to drive organic growth.
Precision Castparts has a Zacks Rank #2 (Buy), which is a good option at the moment. In addition, some other companies operating in the same industry and which have a Zacks Rank #2 (Buy) are Honeywell International Inc. (HON), Crane Co. (CR) and ITT Corporation (ITT).
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