Rockwell Collins Forecasts Lower 2014 Profit

September 20, 2013

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Aviation electronics systems supplier Rockwell Collins forecast lower-than-expected earnings for 2014, citing federal government budget cuts and declining business jet revenue.

The supplier of cockpit systems said it expects profit of USD$4.30 to USD$4.50 per share on revenue of USD$4.5 billion to USD$4.6 billion for the fiscal year that begins October 1.

Rockwell Collins is counting on commercial demand to drive growth as the US curbs military spending. In its most recent quarterly earnings report, its sales were roughly 51 percent government-related and 49 percent commercial.

The company said commercial systems sales would rise in the mid-single-digit percentage range next year, but government systems revenue would fall by mid-to-high-single-digit percentages.

Specifically, Rockwell said it expected budget cuts tied to across-the-board spending cuts under sequestration to hurt revenue by USD$200 million next year. That reduction could be partly offset by foreign military sales, the company added.

RBC Capital Markets analyst Robert Stallard said in a note to clients on Friday that the Rockwell Collins defence outlook "sets a negative benchmark for other defence companies that have yet to give a 2014 forecast."

Defence companies are having difficulty navigating the current Pentagon budget climate as acquisition programmes are cancelled or delayed.

Rockwell Collins has reduced its business in some defence segments and cut jobs as US military spending waned.

But Stallard added that Rockwell's aerospace business should be bolstered by the acquisition of Arinc, which designs systems that help airline pilots communicate with the ground.

In the company's statement on Friday, Rockwell Collins chief executive Kelly Ortberg said the purchase of Arinc "creates a whole new growth platform for Rockwell Collins, enabling us to capitalise on the fast-growing information management market."