Tuesday, November 11, 2008

Rockwell Collins Q4

Rockwell Collins posted a 17% gain in revenues for its fourth quarter on November 3, 2008. They posted these gains despite the strike of Boeing Co. and Hawker Beechcraft Corp. Boeing is a primary customer which suffered a seven-week strike in its commercial aircraft facility. It is expected that this strike has likely pushed back the 787 Dreamliner until 2010. However, demand has remained high for this aircraft as the backlog order is still in excess of six years due to “customers waiting for these more fuel efficient aircraft”. The strike which lasted 55 days lasted longer than I expected and was approximated that it reduced Rockwell’s top line by $40 million. Rockwell’s EPS was $1.13 per share, while one year ago it posted $0.93 per share. Rockwell beat the streets expectations which were expected at $1.07 per share. However, a tax credit helped boosted their earnings by $0.08 per share.

There are many continuing headwinds I expect to come with Rockwell. A continuing problem I see within the industry is the decline air traffic both domestically and globally. Specifically, global air traffic which had expected growth of 1% - 3%, is now expected to be flat because of the global economic downturn. Rockwell has also seen the cancellation of the Army’s Armed Reconnaissance Helicopter. There has also been a deferral of a $35 billion contract of aerial-refueling tanker and a $15 billion combat, search and-rescue helicopter contract. These contracts were awarded to Northrop Grumman and Boeing and Rockwell is a supplier to both. Along with these issues, the election of Barack Obama and with a Democratic Congress posses an interesting dilemma going forward. Expectations are for a cut in Pentagon spending because of overall tightening of our national budget as well as the expected withdrawal of troops in Iraq. Most recently, Rockwell implement a cost reduction plan which included a slash in employees of 300 or 1.5%.

With the issues mentioned above, as well as beating the street expectations for Q4 and the stock still not rebounding, I feel that a consideration to a sell or reducing or full position would be in the best interest for the group. I will be raising these issues at Thursday’s meeting for a final decision by Friday for the conference call.

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