Rockwell Collins (COL), a provider of avionics and IT systems and services, has recorded an 8.07 percent fall in profit for the quarter ended Mar. 31, 2014.
The company earned $148 million or $1.08 a share in the second-quarter, compared with $161 million or $1.17 a share a year ago. Analysts on average had predicted net income of $1.17 a share.
Revenue during the second-quarter grew 12.47 percent to $1,272 million from $1,131 million in the last year period. This growth in sales was primarily due to the acquisition of ARINC.
Gross margin expanded by 81 basis points over the previous year period to 29.72 percent. Total expenses as a percentage of revenues decreased to 82.08 percent from 82.23 percent in the same period last year. That resulted in improvement of 15 basis points in operating margin to 17.92 percent.
The company disclosed operating income of $228 million, compared with an operating income of $201 million in the last year period.
''These strong second quarter financial results, including 12% sales growth and 20% total segment operating margins, support our plan to accelerate growth and increase shareowner value. Share gains from new OEM programs, expanding international sales, and growth in our new Information Management Services business more than offset anticipated declines in business aviation and defense. As we look forward, we expect to convert our sales growth into even higher levels of earnings and cash flow generation as we leverage our proven operating model," said Rockwell Collins chief executive officer, Kelly Ortberg.
ARINC, which was acquired on Dec. 23, 2013, contributed $137 million of sales and $17 million of operating earnings to the second quarter of 2014.
Rockwell Collins expects the ARINC portion of Information Management Services' fiscal year 2014 operating margin to be in the range of 11% to 12%, (from 9% to 10%), due primarily to lower than previously estimated intangible asset amortization expense.
Rockwell Collins has raised earnings per share guidance for fiscal 2014 to $4.40 to $4.55 from $4.35 to $4.55. While the company expects total sales to be in the range of $4.95 billion to $5.05 billion.
Cash flow
Rockwell Collins has generated cash of $63 million from operating activities during the first six months, down 64.80 percent or $116 million when compared with the last year period. It has generated 2.69 cents of operating cash flow in every sales dollar for the first six months, down from 8.16 cents for the same period last year.
The company has spent $1,462 million in cash to meet investing activities during the first six months, as against cash outgo of $62 million in the year period. It has made net capital expenditure of $71 million during the first six months, which was higher by 14.52 percent or $9 million from a year ago.
The company has generated net cash of $1,414 million from financing activities during the first six months, as against cash outgo of $113 million in the last year period.
The company has borrowed net of $1,520 million through debt during the first six months. It has spent net of $30 million on common stock repurchases.
The company's cash dividend payment decreased 2.41 percent or $2 million to $81 million. Dividend payment accounted for 128.57 percent of operating cash flow for the first six months, of Mar. 31, 2014 from 46.37 percent in the same period previous year.
As on Mar. 31, 2014, Rockwell Collins' cash balance stood at $410 million, up 21.66 percent or $73 million from Mar. 31, 2013.
Working Capital
Rockwell Collins witnessed an increase in the working capital over the year. It stood at $1,017 million as at Mar. 31, 2014, up $103 million or 11.27 percent from $914 million on Mar. 31, 2013. The company's current ratio decreased to 1.42 as at Mar. 31, 2014 from 1.47 on Mar. 31, 2013.
The company's cash conversion cycle (CCC) increased to 198 days for second-quarter from 189 days for the last year. CCC is a liquidity metric which expresses the length of time (in days) that a company uses to sell inventory, collect receivables and pay its accounts payable. Decreasing or steady CCCs are good for business.
Days' sales outstanding went up to 79 days for second-quarter compared with 74 days for the last year. This indicates the company has extended credit period to clients for making payment.
Days' inventory outstanding increased to 165 days for second-quarter compared with 159 days for previous year. This suggests the company took more time to convert the inventory into sales.
While days' payable outstanding went up to 46 days for second-quarter from 44 days for the last year. This reflects that the company has made late payment to vendors compared to prior year period.
Debt Position
Rockwell Collins has witnessed an increase in total debt over the last year. As at Mar. 31, 2014, the company's total debt stood at $2,524 million, up 117.96 percent or $1,366 million from Mar. 31, 2013.
The company's total debt accounts for 35.63 percent of total assets on Mar. 31, 2014, compared with 21.63 percent on Mar. 31, 2013.
The company witnessed an increase in debt to equity ratio to 1.36 on Mar. 31, 2014 when compared with 1.03 on Mar. 31, 2013.
Interest coverage ratio, which determines how easily a company can pay interest expenses on outstanding debt, has declined to 14.25 from 25.12 in the same period last year.
Shares of Rockwell Collins went up $0.90 or 1.15 percent to settle at $79.47 on Thursday.
