Rockwell Collins (COL)
Q3 2012 Earnings Call
July 24, 2012 9:00 am ET
Executives
Steve Buesing - Vice President of Investor Relations
Clayton M. Jones - Chairman, Chief Executive Officer, President and Member of Executive Committee
Patrick E. Allen - Chief Financial Officer and Senior Vice President
Analysts
Robert Stallard - RBC Capital Markets, LLC, Research Division
Heidi Rolande Wood - Morgan Stanley, Research Division
Joseph Nadol - JP Morgan Chase & Co, Research Division
Richard Tobie Safran - The Buckingham Research Group Incorporated
Carter Copeland - Barclays Capital, Research Division
David E. Strauss - UBS Investment Bank, Research Division
Cai Von Rumohr - Cowen and Company, LLC, Research Division
Amit Mehrotra - Deutsche Bank AG, Research Division
Robert Spingarn - Crédit Suisse AG, Research Division
Noah Poponak - Goldman Sachs Group Inc., Research Division
George Shapiro
Jason M. Gursky - Citigroup Inc, Research Division
Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division
Ronald J. Epstein - BofA Merrill Lynch, Research Division
Howard A. Rubel - Jefferies & Company, Inc., Research Division
Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division
Presentation
Operator
Good morning and welcome to the Rockwell Collins' Third Quarter Fiscal Year 2012 Earnings Conference Call. Today's call is being recorded. For opening remarks and management introduction, I would like to turn the call over to Rockwell Collins' Vice President of Investor Relations, Steve Buesing. Please go ahead, sir.
Steve Buesing
Thank you, Bonnie, and good morning to all of you on the call. With me on the line this morning are Rockwell Collins' Chairman, President and Chief Executive Officer, Clay Jones; and Senior Vice President and Chief Financial Officer, Patrick Allen. Today's call is being webcast, and you can view the slides we will be presenting today at our website at www.rockwellcollins.com, under the Investor Relations tab.
Please note that today's presentation and webcast will include certain projections and statements that are forward-looking. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including those detailed on Slide 2 of this webcast presentation, and from time to time, in the company's Securities and Exchange Commission filings. These forward-looking statements are made as of today and the company assumes no obligation to update any forward-looking statement.
With that, I'll turn the call over to Clay.
Clayton M. Jones
Thanks, Steve, and good morning, everybody.
Of the 3 primary markets we addressed, government, air transports and business jets, 2 of them have followed a relatively predictable course so far this year. We felt government was going to be weak and following a decline in first half with growth in the second half. Results this quarter indicate that's exactly what's happened. We forecast its strong growth in the air transport sectors, Boeing and Airbus increased production rates, no backlog. And despite a slower aftermarket growth this quarter, air transport is up across the board in double-digits for the year-to-date. However, the market that has proven to be the most unpredictable for a variety of reasons is business jets. Our original guidance for Commercial Systems at the beginning of the year was low double-digit growth, we now expect high single-digit growth with all of the reduction resulting from the Hawker Beechcraft bankruptcy and the slowdown in the business jet aftermarket. Neither of which was expected when we set guidance for the year last September.
Most of this market is in a recovery mode. And we continue to expect deliveries -- increased deliveries at all of the OEMs except Hawker. That said, the recovery is not as robust as we and the OEMs thought it would be at this point, which I believe is a reflection of the state of the global economy. This has had a particularly significant impact at the light end of the market where OEMs are still struggling to fill orders and build backlog. As a result, we are revising our guidance for the year to reflect the updated realities of this market. First, we are lowering our cash flow from operations to about $600 million due to lower collections of accounts receivable from Hawker Beechcraft and higher expected tax payments. Second, we're revising our revenue guidance to about $4.8 billion, which incorporates the updated outlook for business jets. This includes a $25 million reduction to OEM revenue for the Hawker Beechcraft temporary production shutdown and revised build rate, which I disclosed earlier this quarter, and lower expectations for aftermarket growth by $25 million, driven by a slower global economic recovery that has limited discretionary spending and business jet utilization.
Even with those revisions to the revenue, we continue to forecast completing the year within our original EPS guidance range but have narrowed our expectations toward the lower end of that range to $4.40 to $4.50 per share. I should note that I am very pleased with how our company has managed things within our control and taken appropriate actions to maintain this high level of profitability.
As you can see in our Commercial Systems results, much of the impact that led to revised guidance I just discussed was realized in the third fiscal quarter. However, to give you a better look in context of our ongoing Commercial Systems business, if I exclude from our revenue, the impacts of the Hawker bankruptcy and some onetime benefits we experienced last year, Commercial Systems would have experienced high single-digit revenue growth this quarter. That level of growth is the same as the second quarter and similar to what we expect in the fourth quarter.
By now, you've all had a chance to review our press release, so I'll let Patrick cover the details of the third quarter results in just a few minutes. However, I do want to point out a few key aspects of the quarter that I think are particularly noteworthy.
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