Rockwell Collins Inc.: Flying Under the Radar

Oct. 15, 2008
Aviation technology manufacturer focuses on long-term growth to weather economic uncertainty.

Some events are simply outside your control. It could be oil prices, the credit crisis, or when one of your biggest customers unexpectedly has to delay production for an undetermined period of time. For aerospace manufacturer Rockwell Collins Inc., those are just a few examples of the uncontrollable factors taking a bite out of their business.

Actually, the IW 50 Best Manufacturer for 2008 had to take into account the effects of ongoing strikes at not one, but two of the company's largest customers -- Boeing and Hawker Beechcraft. Even so, when the company reaffirmed guidance for fiscal year 2008 last month, it anticipated revenues around $4.75 billion.

While the Hawker Beecher strike has been resolved, Boeing's was still active as of yesterday. When the latest guidance was issued on Sept. 10, Rockwell Collins estimated that a 45-day Boeing strike (added to the effects of Hawker Beecher's strike) would result in $40 million loss in sales.

As those 45 days drew to a close without a resolution, the company's chairman, president and CEO Clay Jones told Reuters on Oct. 9 that he saw "no reason to change" that forecast. However, that could change considering the Associated Press reported yesterday that recent contract talks have been largely unproductive, and the strike is likely to continue "well into November and possibly longer."

Despite the looming effects of the ongoing strike at Boeing, the overall guidance pointed to another solid year of growth in 2009, with revenues expected to fall between $5.05 billion and $5.1 billion and cash flow from operations between $725 million and $775 million.

"With our strong market positions, diversification across many product and customer markets, and balance between government and commercial segments we believe Rockwell Collins has the operating strength to deliver continued improvement in revenues, segment operating margins and earnings per share," Jones said in the release.

Rockwell Collins Inc.
At A Glance

Rockwell Collins Inc.
Cedar Rapids, Iowa
Primary Industry: Communications Equipment
Number of Employees: 19,500
2007 In Review
Revenue: $4.4 billion
Profit Margin: 13.25%
Sales Turnover: 1.18
Inventory Turnover: 3.99
Revenue Growth: 14.29%
Return On Assets: 17.85%
Return On Equity: 48.51%

The company's government systems business is expecting defense spending to remain stable, resulting in revenue growth of approximately 8%. The commercial side, however, isn't faring quite as well, despite strong OEM build rates and the positive impact of market share gains, particularly in business aircraft, which are projected to generate about a 5% increase in revenue.

On Oct. 2, almost a month after the latest guidance was released, senior vice president and CFO Patrick Allen spoke at Oppenheimer & Co.'s 3rd Annual Industrials Conference, offering some additional insight into the company's concerns.

"With high oil prices impacting end-user demand, the credit situation and record-level OEM backlogs, the commercial systems market is a focus of great concern right now," Allen told investors on Oct. 2. "However, over the long term the fundamentals of the market remain strong. We believe the introduction of new aircraft platforms and the urgency to replace older, more fuel-inefficient fleets, is going to continue to create strong demand."

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