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Rockwell Collins' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Stocks in this article: COL

In the business jet market, increased deliveries of Pro Line Fusion to Bombardier continue to drive our OEM revenue growth. I'm also pleased to report that we hit a significant entry into service milestone this quarter when Bombardier delivered their first Global 5000 and Global 6000 aircraft featuring our Avionics.

Beyond the first 2 globals, we are working development programs to put Pro Line Fusion on 9 announced aircraft platforms which enter into service over the next 5 years.

Regarding the Embedded Display System variant of Pro Line Fusion, development is progressing according to our schedule, and we have successfully secured our first OEM position at the light end of the market.

So for the first half of the year, we've seen about a 10% revenue growth in Commercial Systems, and that business has generated 230 basis points of margin expansion.

Our Government Systems results came in as expected, with a 12% decline in revenue, and operating margins holding steady at around 20%. Despite the adverse market conditions, we've experienced consistent growth in Avionics as the Saudi F-15 and the 3 tanker programs, the KC-46, KC-10 and KC-390, are ramping up. These programs are all progressing on plan, and I expect them to be long-term revenue drivers for this business.

Just this quarter, we were awarded additional content on the KC-390, further demonstrating our strengthening relationship with Embraer and the Brazilian Ministry of Defense. Meanwhile, our other 3 product categories in Government Systems saw headwinds from previously canceled programs and reduced DAGR deliveries which pulled down sales this quarter, as expected. Most of these revenue headwinds are behind us for the year, and we continue to expect revenue growth in the second half of the year, albeit at a slightly lower rate.

Our focus this year in Government Systems has been to sustain margin performance and generate strong cash flows. And so far, that's exactly what that team has done in the face of some pretty big challenges.

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