Precision Castparts Corporation has continued to deliver solid sales and earnings performance, tempered by the effect of an outage of the 29,000 tonnes forging press in Houston in Texas toward the end of the first quarter.
First quarter fiscal 2013 financial highlights
Precision Castparts Corporation improved YoY sales by 17.6% in the first quarter of fiscal 2013, with sales of USD 1.97 billion compared to USD 1.68 billion last year. Consolidated segment operating income in the first quarter increased by 22.9% YoY, growing to USD 515.5 million or 26.2% of sales, versus USD 419.5 million or 25% of sales in the same period a year ago. Net income from continuing operations (attributable to PCC) totaled USD 344 million in the first quarter as compared to USD 285.6 million in the first quarter of fiscal 2012. Earnings per share from continuing operations (attributable to PCC) in the quarter were USD 2.35 (diluted, based on 146.4 million shares outstanding), versus earnings per share from continuing operations (attributable to PCC) of USD 1.97 (diluted, based on 145.1 million shares outstanding) in 2011. Including discontinued operations, Precision Castparts' net income (attributable to PCC) for the first quarter of fiscal 2013 totaled USD 341.7 million or USD 2.33 per share (diluted).
Business Highlights
Investment Cast Products: The Investment Cast Products segment, which provides the clearest line of sight into trends in aerospace and industrial gas turbine end markets, improved year over year sales by 9% in the first quarter of fiscal 2013, with USD 619.7 million in the quarter as compared to USD 568.8 million a year ago. Segment operating income totaled USD 206.1 million or 33.3% of sales, versus last year's segment operating income of USD 187.1 million or 32.9% of sales. In the first quarter, contractual material pass through pricing was approximately USD 19.2 million as compared to USD 18.3 million a year ago. Increased base production rates at the OEMs, further ramps in the 787 program, and solid aftermarket demand propelled aerospace sales, which were 11% higher year over year and also continued to show moderate sequential improvement. For the segment's industrial gas turbine business, spares strength served as the primary driver for sales, with more than 23% growth year over year, while OEM backlogs continued to increase as well. Investment Cast Products delivered another quarter of strong performance through its unyielding focus on achieving daily cost reductions in every one of its manufacturing operations.
Forged Products: Sales in the first quarter of fiscal 2013 grew approximately 13%, moving to USD 857.2 million from USD 758.5 million last year, and the segment improved its operating income to USD 195.6 million or 22.8% of sales as compared to segment operating income of USD 156.5 million or 20.6% of sales, a year ago. A full quarter of KLAD, Rollmet, Tru Form, and RathGibson, as well as a small contribution from Dickson/Aerocraft, were included in the first quarter results. Contractual material pass through pricing was essentially flat with last year, and the decreasing cost of nickel dropped the selling price of external alloy products from the segment's three primary mills by approximately USD 10 million year over year. Forged Products aerospace sales increased by approximately 20% in the quarter, spurred by OEM build schedules, solid 787 demand, and the benefit of acquisitions. Deliveries of oil and gas market products improved by approximately 35% year over year and continue to build through this fiscal year. During the first quarter, an unplanned outage of the 29,000 tonne press in Houston impacted both sales and operating income for the last three weeks of production in the quarter, with the repairs expected to extend roughly five weeks into the second quarter. Despite this unanticipated headwind, the segment delivered strong operating performance in the first quarter by effectively leveraging higher volumes across its high fixed-cost base and continually optimizing metal utilization and yields.
Fastener Products: Sales for Fastener Products increased by approximately 42% in the first quarter of fiscal 2012, rising to USD 492.8 million from USD 348.0 million last year, which included a full quarter of Primus and a partial quarter of sales from Centra. Segment operating income was USD 146.2 million or 29.7% of sales, compared to segment operating income of USD 106.8 million or 30.7% of sales, in the same quarter a year ago. Base critical aerospace fastener sales showed more than 15% YoY growth due to base aircraft production increases, slowly improving 787 orders and heightened distribution activity, and the segment's aerostructures businesses, including the newer acquisitions, are seeing steady top-line improvement as well. Operationally, the base aerospace fastener businesses are starting to drop through solid incremental margins as larger volumes are leveraged across much improved cost structures, and the aerostructures operations are performing beyond initial expectations and driving their margins higher.
Mr Mark Donegan chairman & CEO of Precision Castparts Corporation said that "Our aerospace and power end markets look very solid right now, and, based on what has been announced by our customers and new opportunities we see over the next few years, our growth will continue upward at a steady pace. On the aerospace front, the main drivers will be increased narrow body and wide-body aircraft deliveries and higher 787 build rates. All of our segments are now building airframe and engine components relatively in sync with current base production and Fastener Products orders for the 787 program are gradually aligning with build rates."
He added that "We are well established in our power end markets as well. The high availability and low cost of natural gas, along with hotter weather, continues to spark our IGT aftermarket sales, as utilities and independent power producers place more demand on the installed base. In addition, we are starting to see some increased orders from OEMs, which, while not at the rates of the mid 2000s, is an encouraging sign. Our oil and gas business will steadily build with the delivery of the Saudi Aramco and ADNOC orders through the back half of this fiscal year and into the next, and we have several other significant projects in the pipeline. The interconnect pipe market remains stable, with sales upside in the latter half of the year."
Mr Donegan said that "Our acquisition strategy continued to bear fruit in the first quarter. We are focusing very strongly on building out our aerostructures platform by consolidating some very attractive properties in what is a very fragmented market. To that end, we acquired Centra Industries during the quarter and announced the addition of Klune and certain Heroux Devtek assets. All of these businesses extend our reach into the aerostructures market, offering us new capabilities and significant opportunities for synergies across our product portfolio. Wyman-Gordon and SMXN Technologies demonstrated our ability to establish a beachhead in an industry and progress aggressively forward, and we are confident that these aerostructures businesses will give us the same traction. In addition, the Heroux Devtek industrial operations will enable Forged Products to do more of its own machining, a capability that otherwise would have required a sizeable capital investment. In addition, we acquired Dickson Testing and Aerocraft Heat Treating during the quarter. We will integrate these businesses and leverage their capabilities across our operations, as well as continue to grow their presence in the aerospace component market worldwide. Looking forward, we are pursuing additional acquisition candidates to enhance shareholder value over the long haul."
He added that "Along the way, we will face some major headwinds. Our 29,000 tonne forging press in Houston had an unplanned outage late in the quarter, which will extend about five weeks into the second quarter. These repairs, along with the planned 50,000 tonnes press rebuild in Grafton, Massachusetts, and the normal scheduled maintenance of the other forged complexes for approximately two weeks, will impact sales, absorption, and incremental expenses during the second quarter. We are dealing with these challenges directly and quickly putting them behind us, with a return to business as usual by the third quarter. All of our businesses are well positioned for the future; the long range growth prospects for the top and bottom line are solid. We continue to drive all of our operations to perform better than they did the day before and to deliver the results shareholders expect from Precision Castparts."
Source - Precision Castparts Corporation
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