Rockwell Collins Falls After Supplier Snag Clips Earnings

  • CEO says cheap oil, China turmoil not affecting product sales
  • Aviation supplier sees sales momentum in second half of year

Rockwell Collins Inc. fell to a three-month low after late shipments from a supplier hurt first-quarter earnings, leaving the aviation-equipment company to depend on a sales surge later this year to reach profit forecasts.

The shares dropped 1.6 percent to $84.44 in New York, closing at their lowest level since Oct. 21. The stock had dropped as much as 5.3 percent intraday, before paring the loss as the broader market rallied.

Rockwell Collins on Friday reported earnings per share of $1, which was 4 cents less than the average estimate of 12 analysts surveyed by Bloomberg. While the company said late shipments from a subcontractor caused government sales to drop, Chief Executive Officer Kelly Ortberg said Friday in an interview that those problems have been resolved.

The company’s 3 percent drop in aerospace-transport sales from a year earlier, combined with weak growth in spare parts, “could fuel negative commercial aero sentiment” because Rockwell Collins is the first large aviation company to report quarterly results, Jason Gursky, an aerospace analyst with Citigroup Inc., said in a note to clients.

Even so, the supplier to Boeing Co., Airbus Group SE, Embraer SA and Bombardier Inc. remains optimistic that it can still reach growth targets for the year despite investor concern that cheap oil and slower growth in China may hinder demand for new aircraft.

China’s Appetite

“I don’t see any macro dynamic impact to that second half,” Ortberg said. “A lot of it is government-related, and the oil situation is not impacting any of that growth.”

Sales of defense products to crude-dependent states in the Middle East haven’t been hurt by volatile fuel prices, while China’s appetite for aircraft products remains undiminished, he said. The company’s air-transport sales growth seems assured because revenue is tied to planned production increases for some of the most popular Boeing and Airbus jetliners.

“I don’t see anybody thinking about slowing rate increases on the 787, A320 and A350,” Ortberg said. Boeing’s announcement Thursday that it was slowing 747 jumbo output, with no mention of the better-selling 777, probably signals that a widely expected cut in production of the largest twin-engine jetliner isn’t imminent, he said.

Prospects for business jets aren’t as rosy. That sector remains mired in a slump with most manufacturers making plans to slow output.

“We’re seeing fewer large business jets flying international trips primarily in China, Russia, Brazil,” Ortberg said.

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