OREANDA-NEWS. Rockwell Collins, Inc. (NYSE: COL) today reported sales in the first quarter of fiscal year 2016 were $1.169 billion, a 5% decrease from the same period in fiscal year 2015. First quarter fiscal year 2016 earnings per share from continuing operations were $1.00 compared to $1.26 in the prior year. Earnings per share from continuing operations in the first quarter of fiscal year 2016 includes a 21 cent restructuring charge. The restructuring charge relates primarily to headcount actions the company is taking as a result of certain challenging market conditions, particularly in business aviation.

During the first quarter of fiscal 2016, the Federal R&D Tax Credit was permanently reinstated retroactive to January 1, 2015, resulting in the recognition of an 18 cent retroactive benefit. As the Federal R&D Tax Credit has been permanently reinstated, the Company will also benefit from the Federal R&D Tax Credit throughout fiscal year 2016. As a result, the Company is raising its earnings per share guidance by 25 cents due to the benefit of the Federal R&D Tax Credit which is partially offset by higher restructuring and incentive compensation expense. In addition, the Company is increasing its cash flow from operations guidance by $50 million for fiscal year 2016.

"As we expected, our first quarter was a slow start to our fiscal 2016 plan," said Rockwell Collins Chairman, President, and Chief Executive Officer, Kelly Ortberg. "Our sales and earnings for Commercial Systems and Information Management Services were in line with expectations. However, our Government Systems sales were below our expectations due to the timing of certain orders and a supplier quality issue which impacted late-quarter deliveries of communications products. I expect these issues to be quickly resolved and we should recover the delays within the fiscal year, supporting our second-half growth plan in Government Systems."

Ortberg continued, "We remain focused on executing programs that will drive long-term growth. In the first quarter of fiscal year 2016 we saw a significant number of accomplishments, including certification of the CSeries and ARJ-21 aircraft, first flight of the Mitsubishi Regional Jet, entry into service of the Bombardier Challenger 650, continued progress on the Boeing 737MAX supporting aircraft rollout and upcoming first flight, and entry into service of the King Air with our new Fusion EDS avionics. With this execution, I remain confident our strategies will drive long-term double-digit growth in earnings and cash flow from operations."

Following is a discussion of fiscal year 2016 first quarter sales and earnings for each business segment.

Commercial Systems

Commercial Systems, which provides aviation electronics systems, products and services to air transport, business and regional aircraft manufacturers and airlines worldwide, achieved 2016 first quarter results as summarized below.

  • Original equipment sales decreased due to lower business aircraft OEM production rates, unfavorable airline selectable equipment mix, and lower Airbus A330 production rates. These decreases were partially offset by higher deliveries in support of the A350 and Embraer Legacy business jets production ramp along with higher customer funded development program sales.
  • Aftermarket sales increased due to higher head-up display retrofit sales to customers in China, higher inorganic sales from the acquisitions of Pacific Avionics and International Communications Group (ICG), and higher regulatory mandate sales.
  • Operating earnings and operating margin were about flat as lower company-funded research and development expense was offset by higher costs from the acquisitions of Pacific Avionics and ICG and increased costs from further expansion in international emerging markets.  In addition, operating earnings and operating margin were negatively impacted by sales mix as lower margin customer-funded development sales increased in the first quarter of fiscal year 2016 compared to the same period in the prior year.

Government Systems

Government Systems provides a broad range of electronic products, systems and services to customers including the U.S. Department of Defense, other government agencies, civil agencies, defense contractors and ministries of defense around the world.

Beginning with the first quarter of fiscal year 2016, Government Systems sales categories have been consolidated as a result of an internal reorganization and are delineated based on the underlying product technologies. The previously reported sales categories of Communication products, Surface solutions and Navigation products are now primarily consolidated into Communication and Navigation. Government Systems sales for the first quarter of fiscal year 2015 has been reclassified to the current year presentation. See the supplemental schedule included in this press release for a reconciliation of amounts reclassified.

Results from the first quarter of 2016 are summarized below.

  • Avionics sales decreased due to lower rotary wing hardware sales, the timing of deliveries for the E-6 program, and lower sales for simulation and training programs.
  • Communication and Navigation sales decreased due to the wind-down of an international electronic warfare program as well as lower international targeting systems sales.
  • Changes in foreign currency exchange rates, primarily the strengthening of the U.S. dollar, resulted in a $6 million reduction to Government Systems sales for the first quarter of fiscal year 2016 when compared to the same period in the prior year. This $6 million reduction is included within the Government Systems sales categories above.
  • Operating earnings and operating margin decreased primarily due to lower sales.

Information Management Services

Information Management Services (IMS) provides communication services, systems integration and security solutions across the aviation, airport, rail, and nuclear security markets. Results from the first quarter of 2016 are summarized below.

  • IMS sales increased primarily due to 7% growth in aviation related businesses including GLOBALinkSM and ARINCDirectSM.
  • IMS operating earnings and operating margin increased primarily due to incremental earnings from the higher sales volume.

Corporate and Financial Highlights

Income Taxes
The company's effective income tax rate from continuing operations was 15.3% for the first quarter of 2016 compared to a rate of 22.5% for the same period last year. The lower current year effective income tax rate from continuing operations was primarily due to the timing of the Federal R&D Tax Credit. On December 18, 2015, the Protecting Americans from Tax Hikes Act was enacted which permanently reinstated the Federal R&D Tax Credit retroactive to January 1, 2015. This favorable tax credit had previously expired on December 31, 2014. As a result of this legislation, the Company now expects its effective income tax rate for 2016 to be in the range of 22 to 23 percent (from about 28 percent).

Cash Flow
Cash used for operating activities was $91 million for the first three months of fiscal year 2016, compared to cash used for operating activities of $60 million in the first three months of fiscal year 2015. The increase in cash used for operating activities was due primarily to unfavorable working capital changes partially offset by lower tax payments.

During the first quarter of 2016, the company repurchased 1.0 million shares of common stock at a total cost of $90 million. The company also paid a dividend on its common stock of 33 cents per share, or $43 million, in the first quarter of 2016.

Fiscal Year 2016 Outlook

The following table is a summary of the company's financial guidance for continuing operations for fiscal year 2016, which has been updated primarily due to the favorable impact of the permanent reinstatement of the Federal R&D Tax Credit:

(1) - Total research and development investment consists of company and customer funded research & development expenditures as well as the net increase in pre-production engineering costs capitalized within inventory.

Conference Call and Webcast Details
Rockwell Collins Chairman, President, and CEO, Kelly Ortberg, and Senior Vice President and CFO, Patrick Allen, will conduct an earnings conference call at 9:00 a.m. Eastern Time on January 22, 2016. Individuals may listen to the call and view management's supporting slide presentation on the Internet at www.rockwellcollins.com. Listeners are encouraged to go to the Investor Relations portion of the web site at least 15 minutes prior to the call to download and install any necessary software. The call will be available for replay on the Internet at www.rockwellcollins.com.

Business Highlights

Rockwell Collins Pro Line Fusion® certified on Bombardier C Series
Rockwell Collins' Pro Line Fusion® advanced avionics system was certified on the Bombardier CS100 commercial aircraft. First aircraft delivery is scheduled for the second quarter of 2016.

Embraer selected Rockwell Collins to provide KC-390 Cargo Handling and Aerial Delivery Control System
Rockwell Collins was selected by Embraer to provide the Cargo Handling and Aerial Delivery Control System for the Brazilian Air Force's KC-390 program.

Jazeera Airways gets connected with Rockwell Collins PAVES™ Cabin Wireless and next-generation Global Xpress connectivity
Jazeera Airways will be Rockwell Collins' first airline customer to experience wireless broadband connectivity with the company's new PAVES™ inflight entertainment and connectivity solution. Under the terms of the agreement, Jazeera Airways will install PAVES Cabin Wireless and Inmarsat's Global Xpress high speed connectivity on its fleet of seven Airbus A320 aircraft. The new service will launch in December 2016.

Rockwell Collins signed first Jet ConneX service agreement with VistaJet
VistaJet is Rockwell Collins' first business aviation customer to adopt Inmarsat's Jet ConneX, providing the fastest broadband connectivity available.

Royal Jordanian Airlines selected Rockwell Collins' ARINC GLOBALink services for airborne data and voice communications
Royal Jordanian Airlines is now using Rockwell Collins' ARINC GLOBALink to provide primary communications for its fleet of aircraft.

Rockwell Collins integrated flight simulator visual systems selected:

  • Rockwell Collins' integrated visual systems will be featured on two Airbus A320 full flight simulators that will be based at Airbus's new training centers in Mexico City, Mexico.
  • Rockwell Collins' new high-fidelity EP-8100 image generation system with JVC Kenwood VS2500 laser-hybrid projectors will be featured on Virgin Atlantic Airways' Boeing 787 Dreamliner full flight simulator.
  • Saudi Arabian Airlines selected Rockwell Collins to provide the EP-8100 image generator with laser illuminated VS2500 projectors, for the airline's new Boeing 777 and Boeing 787 Dreamliner full flight simulators.  Rockwell Collins will also provide VS2500 laser projector upgrades to four existing simulators. 
  • Rockwell Collins was selected by EgyptAir to provide a comprehensive visual system upgrade for the airline's Boeing 777, Airbus A320 and Airbus A330 full flight simulators.
  • Rockwell Collins was selected by Turkish Airlines to provide its EP-8100 visual system for the airline's Boeing Next Generation 737, Airbus A320 and Airbus A330 full flight simulators.

Air France Industries to upgrade four A330s with Rockwell Collins' PAVES™ Passenger Services System
Air France Industries will upgrade four Airbus A330 aircraft for one of its customers with Rockwell Collins' PAVES™ Passenger Services System. The standalone, cost-effective reading light and cabin crew call system with USB charging port brings several benefits, including a significant reduction in aircraft weight.

Aeromexico is launch customer for Rockwell Collins ARINC MultiLink flight tracking service
Aeromexico is the launch customer for Rockwell Collins' ARINC MultiLink service, following the successful completion of recent trials. The service, announced earlier this year, offers a comprehensive and cost-effective global flight tracking solution.

Data Link Solutions Receives $32 Million Contract to Boost Naval Communications Capabilities
Data Link Solutions (DLS), a joint venture between BAE Systems and Rockwell Collins, was awarded a $32 million, firm-fixed-price contract from the Space and Naval Warfare Systems Command to provide Multifunctional Information Distribution System (MIDS)-On-Ship (MOS) systems to the U.S. Navy and other international naval forces. By providing full interoperability with all Link 16 systems, MOS increases situational awareness capabilities of ship communications by providing secure, high-capacity, and jam-resistant digital Link 16 data and voice communications capabilities.

Federal Aviation Administration selects Rockwell Collins to support flight operations
The Federal Aviation Administration selected Rockwell Collins' ARINCDirect flight planning, flight scheduling, international trip support, aircraft data link, safety management and flight tracking services to support flight operations for its fleet of 32 specially-equipped flight inspection aircraft.

flydubai Airlines selects Rockwell Collins Head-up Guidance System and MultiScan ThreatTrack™ weather radar for Boeing Next-Generation 737-800
Dubai-based flydubai selected a suite of Rockwell Collins avionics, including the Head-up Guidance System (HGS™), MultiScan ThreatTrack™ weather radar and datalink communications system for 11 Next-Generation Boeing 737 aircraft.

Rockwell Collins signs five-year service agreement with AJW Group
AJW Group has awarded Rockwell Collins a five-year Fixed Price Repair agreement to maintain Rockwell Collins' equipment installed on AJW customers' fleets. Aircraft covered include A320, B737, B747 and B767.