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Q2 fy14 quarterly earnings presentation

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© 2014 Rockwell Collins All rights reserved. Proprietary Information Insert pictures into these angled boxes. Height should be 3.44 inches. 2 nd Quarter FY 2014 Conference Call April 17, 2014
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Page 1: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information

Insert pictures into these angled boxes. Height should be 3.44 inches.

2nd Quarter FY 2014Conference Call

April 17, 2014

Page 2: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information 2

Safe Harbor Statement

This presentation contains statements, including certain projections and business trends, that are forward-looking statements as

defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result

of certain risks and uncertainties, including but not limited to the financial condition of our customers, including bankruptcies; the

health of the global economy, including potential deterioration in economic and financial market conditions; adjustments to the

commercial OEM production rates and the aftermarket; the impacts of natural disasters, including operational disruption, potential

supply shortages and other economic impacts; cybersecurity threats, including the potential misappropriation of assets or other

sensitive information, corruption of data or operational disruption; delays related to the award of domestic and international

contracts; delays in customer programs; unanticipated impacts of sequestration and other provisions of the Budget Control Act of

2011 as modified by the Bipartisan Budget Act of 2013; the discontinuance of support for military transformation and

modernization programs; potential adverse impact of oil prices on the commercial aerospace industry; the impact of terrorist

events on the commercial aerospace industry; declining defense budgets resulting from budget deficits in the U.S. and abroad;

changes in domestic and foreign government spending, budgetary, procurement and trade policies adverse to our businesses;

market acceptance of our new and existing technologies, products and services; reliability of and customer satisfaction with our

products and services; potential unavailability of our mission-critical data and voice communication networks; favorable outcomes

on or potential cancellation or restructuring of contracts, orders or program priorities by our customers; recruitment and retention

of qualified personnel; regulatory restrictions on air travel due to environmental concerns; effective negotiation of collective

bargaining agreements by us and our customers; performance of our customers and subcontractors; risks inherent in

development and fixed-price contracts, particularly the risk of cost overruns; risk of significant reduction to air travel or aircraft

capacity beyond our forecasts; our ability to execute to our internal performance plans such as our productivity and quality

improvements and cost reduction initiatives; achievement of ARINC integration and synergy plans as well as our other acquisition

and related integration plans; continuing to maintain our planned effective tax rates; our ability to develop contract compliant

systems and products on schedule and within anticipated cost estimates; risk of fines and penalties related to noncompliance with

laws and regulations including export control and environmental regulations; risk of asset impairments; our ability to win new

business and convert those orders to sales within the fiscal year in accordance with our annual operating plan; and the

uncertainties of the outcome of lawsuits, claims and legal proceedings, as well as other risks and uncertainties, including but not

limited to those detailed herein and from time to time in our Securities and Exchange Commission filings. These forward-looking

statements are made only as of the date hereof.

Page 3: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information 3

($ in millions except EPS amounts)

2nd Quarter FY 2014 Results

$1,131 $1,272

2Q FY13 2Q FY14

Sales

12% increase $161 $147

2Q FY13 2Q FY14

Income from Continuing Operations, net of taxes

9% decrease

$1.17 $1.07

2Q FY13 2Q FY14

EPS from Continuing Operations

9% decrease

137.8 137.2

2Q FY13 2Q FY14

Diluted Average Shares Outstanding

Page 4: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information

(1)

4

($ in millions)

Sales

$9 million Aftermarket increase: 4%

• Increased service and support

• Increased revenue from regulatory airspace

mandates

$5 million OEM growth: 2%

• Higher hardware delivery rates for Boeing

787 aircraft

• Partially offset by reduction in sales at light-

end of business jet market

Operating Earnings

$11 million Increase in operating earnings

• Higher sales

• Lower company-funded R&D expenses

• Savings from cost reduction initiatives

Commercial Systems

22.8%21.4%Operating Margins

(1) Certain prior year amounts have been reclassified to the Information Management

Services segment. See the supplemental schedule included in the press release filed

on Form 8-K dated January 21, 2014 for a reconciliation of amounts reclassified.

(1)

$542 $556

2Q FY13 2Q FY14

CS Sales

3% increase

$116 $127

2Q FY13 2Q FY14

CS Operating Earnings

9% increase

Page 5: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information 5

19.4% 19.2%

($ in millions)

Government Systems

Sales

Sales decline $11 million: (2%)

• Lower satellite communication sales

• Lower KC-46 and KC-10 development

program sales

• Partially offset by increased hardware sales:

• E-6B aircraft upgrade

• International platforms

Sales by product category:

• Avionics increase 3%

• Communication Products decrease (13)%

• Surface Solutions decrease (2)%

• Navigation Products increase 2%

Operating Earnings

Decrease in operating earnings and operating

margin primarily due to lower sales

Operating Margins

$578 $567

2Q FY13 2Q FY14

GS Sales

2% decrease

$112 $109

2Q FY13 2Q FY14

GS Operating Earnings

3% decrease

Page 6: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information 6

($ in millions)

Sales

• $137 million sales from ARINC

• $1 million organic sales growth

Operating Earnings

Increase in operating earnings and operating

margin primarily due to the acquisition of

ARINC

Information Management Services

12.1%9.1%Operating Margins

$11

$149

2Q FY13 2Q FY14

IMS Sales

$1

$18

2Q FY13 2Q FY14

IMS Operating Earnings

Page 7: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information 7

($ in millions except EPS amounts)

Six Month FY 2014 Results

$2,193 $2,343

2Q FY13 YTD 2Q FY14 YTD

Sales

7% increase

$293 $278

2Q FY13 YTD 2Q FY14 YTD

Income from Continuing Operations, net of taxes

5% decrease

$2.10 $2.03

2Q FY13 YTD 2Q FY14 YTD

EPS from Continuing Operations

3% decrease

$179

$63

2Q FY13 YTD 2Q FY14 YTD

Operating Cash Flow

65% decrease

Page 8: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information

76 89

246 230

142 132

2Q FY13 YTD 2Q FY14 YTD

R & D Investment

Company Funded R&D

Customer Funded R&D

Increase in Pre-production Engineering, Net

8

$464$451

($ in millions)

Research and Development

• Company-funded R&D declined due to a

reduction in R&D efforts on various next

generation business jet avionics development

programs

• Customer funded R&D declined due to

development programs winding down in

Government Systems

• Increased investment in pre-production

engineering programs driven by:

• Boeing 737MAX

• Bombardier C-Series

• Global 7000/8000

21.2% 19.2%% of Sales

Page 9: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information 9

9/30/13 3/31/2014

Cash and cash equivalents 391$ 410$

Short-term Debt (436) (866)

Long-term Debt (563) (1,658)

Net Debt (608)$ (2,114)$

Equity 1,623$ 1,852$

Debt To Total Capital 38% 58%

Debt To EBITDA (1)

0.9x 2.3x

($ in millions)

Capital Structure Status

(1) See slide 12 for non-GAAP disclosures

Page 10: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information 10

(shares in millions)

Status of Share Repurchases

0.5 million shares repurchased in fiscal year

2014 second quarter

• Cost of Purchases - $39 Million

• Average Cost per Share - $81.57

87 million shares repurchased since January

2002

• Cost of Purchases - $4.3 Billion

$356 million authorization remaining at the

end of Q2

135.9 135.5

2Q FY13 2Q FY14

Common Shares Outstanding

Page 11: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information 11

Total Sales $4.95 Bil. to $5.05 Bil.

Total Segment Operating Margins 20% to 21%

Earnings Per Share$4.40 to $4.55

(from $4.35 to $4.55)

Cash Provided by Operating Activities $600 Mil. to $700 Mil.

Research & Development Investment About $950 Mil.

Capital Expenditures About $160 Mil.

FY 2014 Guidance

Page 12: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information 12

The Non-GAAP ratio of debt to EBITDA information included on slide nine is believed to be useful to

investors’ understanding and assessment of the Company’s total capital structure and liquidity. The

Company does not intend for the information to be considered in isolation or as a substitute for the

related GAAP measures. The table below explains the debt to EBITDA calculation in more detail for the

twelve-month period from October 1, 2012 through September 30, 2013 and the twelve-month period

from April 1, 2013 through March 31, 2014 (unaudited, in millions):

Non-GAAP Financial Information

12 months ended

9/30/13 3/31/14

Income from continuing operations before income taxes $ 868 $ 877

Interest expense 28 42

Depreciation 124 130

Amortization of intangible assets and pre-production engineering costs 56 66

Earnings before interest, taxes, depreciation and amortization (EBITDA) $ 1,076 $ 1,115

9/30/13 3/31/14

Total debt $ 999 $ 2,524

Debt to EBITDA 0.9x 2.3x

Page 13: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information 13

($ in millions)

Second Quarter 2014 ARINC Results

Three months ended March 31, 2014

ARINC

Corporate

Costs(a) Total

Sales 137$ -$ 137$

Income before income taxes 17$ (10)$ 7$

Depreciation and amortization expense 11 - 11

Interest expense - 8 8

EBITDA 28 (2) 26

Transaction and integration costs - 1 1

EBITDA, adjusted 28$ (1)$ 27$

Total EBITDA, adjusted as a percentage of sales 20%

The Non-GAAP financial information included in the table below for earnings before interest, taxes, depreciation, and amortization (EBITDA) and adjusted EBITDA are believed to be useful to an investor's understanding and assessment of the recently completed ARINC acquisition. The Company does not intend for the Non-GAAP information to be considered in isolation or as a substitute for the related GAAP measures. The table below explains the impact that certain non-cash depreciation and amortization charges, and certain transaction and integration expenses, had on the financial results for ARINC during the three months ended March 31, 2014. The ASES business is treated as discontinued operations and is therefore excluded from the table (unaudited, in millions).

(a) The Company’s definition of segment operating earnings excludes certain items, including interest and other general corporate expenses not allocated to business segments. Corporate costs for the three months ended March 31, 2014 include $8 million of interest expense, primarily attributable to incremental interest on the debt we issued in December 2013 to finance the acquisition, and $1 million of deal related transaction costs. The remaining corporate costs of $1 million represent selling, general and administrative expenses related to ARINC that were incurred at the corporate level.

Page 14: Q2 fy14 quarterly earnings presentation

© 2014 Rockwell Collins All rights reserved.

Proprietary Information 14


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