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Precision Castparts' Q1 Earnings & Revenues Lag, Down Y/Y - Analyst Blog

Zacks Equity Research
Updated

Precision Castparts Corp. PCP reported first-quarter fiscal 2016 earnings from continuing operations of $2.87 per share, which lagged the Zacks Consensus Estimate of $3.05.

Earnings per share (EPS) declined 13.6% from  the year-ago quarter.

Precision Castparts Corporation - Earnings Surprise | FindTheBest

Lackluster bottom-line performance was mainly attributed to poor sales. Moreover, higher interest expense and selling & administrative costs dragged down EPS in the quarter.

Inside the Headlines

Net sales decreased about 4.3% year over year to $2.41 billion, which fell short of the Zacks Consensus Estimate of $2.51 billion.

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The year-over-year decline in net sales was primarily attributed to lower Forged Products and Airframe Products sales in the reported quarter.

Segment Results

Investment Cast Products sales inched up 1.1% year over year to $632 million. The growth was driven by strong performance from Commercial sales (up 6%) and IGT sales (up 4%).

Commercial sales growth was driven by strong  demand from Original Equipment Manufacturers (“OEM”) and spare parts customers.

Demand for new turbines and spare part drove sales in the IGT market.

Forged Products sales declined 8% year over year to $1 billion owing to negative impact from metal prices and pricing pressure. Also, challenging scenario in the oil & gas and other non-IGT power generation markets worsened the extent of the fall. Moreover, lower OEM demand in the military aerospace and reduction in power sales added to the overall decline.

Airframe Products sales fell 3.5% year over year to $779 million. While sales in the commercial aerospace markets remained flat year over year, lower sales in military and general industrial aerospace markets led to the overall poor performance of this segment.

Quarter-End Activity

Precision Castparts disclosed an agreement for the acquisition of Composites Horizons, LLC (‘‘CHI’’) from American Industrial Partners for an undisclosed amount. Post completion, the acquired company will be integrated into Precision Castparts’ Investment Cast Products segment.

The company believes the demand for composite and CMC components for aircraft engines will increase significantly in the coming decade, and this bodes well for the long term.

Liquidity

As of Jun 28, 2015, Precision Castparts had cash balance of $1.05 billion, up almost 123% from the figure recorded on Mar 29, 2015. The company’s total debt level stood at $5.28 billion compared with $4.58 billion as on Mar 29, 2015.

The company  spent $232 million for repurchasing shares during the first quarter of 2016.

Fiscal 2016 Guidance

For fiscal 2016, Precision Castparts expects EPS in the range of $12.25–$13.15, down from the previous guidance range of $12.50–$13.40. The company projects sales within $10–$10.4 billion.

Management has revised its guidance based on its freshly devised capital deployment strategy, which includes the interest expense from its $2-billion bond issuance program. The guidance also takes into account the challenging scenario in the oil and gas markets that has resulted in lower consumer spending, thereby adding to the company’s woes.

Precision Castparts believes that increasing demand for Industrial gas turbines and futuristic aircraft engines indicate bright prospects for its Investment Cast Products segment. Moreover, Forged Products segment is recovering from a relatively dull phase, and this recovery is likely to gain momentum, going forward. Also, the company expects performance of its Airframe Products to improve on the back of increased activities in select aerospace markets.

Zacks Rank

Precision Castparts currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include AO Smith Corp. AOS, AZZ incorporated AZZ and II-VI Inc. IIVI. While AO Smith and AZZ sport a Zacks Rank #1 (Strong Buy), II-VI carries a Zacks Rank #2 (Buy).


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