Rockwell Collins Inc. F3Q10 (Qtr End 05/30/10) Earnings Call Transcript

As a result of this strong performance and confidence in our outlook for the fourth quarter, we’re updating our guidance with expectations for full year revenues of about $4.7 billion, combined segment operating margins of about 19%, EPS of about $3.50 a share and operating cash flow of about $700 million.

Now, for as many things as we correctly call this year, there have been a few areas where our predictions have not played out exactly as expected. Within Commercial Systems as an example, even prior to the beginning of our fiscal year, we made an assumption that Boeing and Airbus would reduce their narrow-body production rates. Of course, that hasn’t happened. And instead, they put in place plans to increase those production rates. And there’s been other welcome good news from the OEM market sector. We have seen the benefits of beginning 787 shipments and higher year-over-year deliveries as Boeing created lift in air transport systems.

We’ve also seen shipments for Chinese aircraft and market share gains with the Cessna CJ4, creating some positive impact in an otherwise depressed business and regional OEM market.

Now let me remind you, about 50% of our total commercial revenue is OEM related and the strength in this area has helped offset a delay in the recovery of our air transport aftermarket business. Now, since I know that there is both high interest and great expectations surrounding this air transport aftermarket recovery, let me add some important color from our perspective.

We’ve all seen an abundance of market data that shows passenger traffic is experiencing a very robust recovery with an accelerating trend. That acceleration has led us to increase our calendar year traffic growth assumptions from about 3% previously to between 4% and 5% now. This is very good news and considering past cycle impacts should be an important leading indicator for growth in the air transport aftermarket.

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