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Precision Castparts Corp. Reports Third Quarter Fiscal 2014 Earnings

Third Quarter Fiscal 2014 Highlights
  • Record EPS from continuing operations of $2.95 (diluted)
  • Record consolidated segment operating margins
  • Record cash generation
  • Completed acquisition of Permaswage

PORTLAND, Ore., Jan. 23, 2014 (GLOBE NEWSWIRE) -- Continuing to ship into healthy end markets and to effectively leverage operational throughput, Precision Castparts (NYSE:PCP) reported solid sales and earnings per share in the third quarter of fiscal 2014, tempered by late-quarter customer schedule shifts and fewer shipping days in the quarter.

Third Quarter Fiscal 2014 Financial Highlights

Precision Castparts (PCC) sales in the third quarter of fiscal 2014 were $2.36 billion, a 16 percent increase over sales of $2.03 billion a year ago, reflecting approximately 1 percent organic growth excluding the impact of contractual pass-through pricing and other changes in metal/revert pricing. Consolidated segment operating income grew by 27 percent year over year, rising to $659 million, or 28.0 percent of sales, compared to $518 million, or 25.5 percent of sales, in the same period last year. PCC reported a 27 percent improvement in net income from continuing operations (attributable to PCC) in the third quarter, generating $432 million, versus net income of $339 million a year ago. For the quarter, earnings per share (EPS) from continuing operations (attributable to PCC) were $2.95 (diluted, based on 146.5 million shares of stock outstanding), compared to $2.31 (diluted, based on 146.8 million shares of stock outstanding.)

A full quarter of TIMET, Texas Honing, and Synchronous, along with the benefit from several smaller acquisitions in the Forged Products and Airframe Products segments, contributed to the growth in year-over-year sales.

Including discontinued operations, the Company's total net income (attributable to PCC) for the third quarter of fiscal 2014 was $433 million, or $2.96 per share (diluted).

Business Highlights

Investment Cast Products: Investment Cast Products sales totaled $609 million in the third quarter, versus $613 million last year, and, despite this small drop in sales, the segment increased operating income to $218 million, or 35.8 percent of sales this quarter, compared to $209 million, or 34.1 percent of sales a year ago. Aerospace sales were up by approximately 2 percent, driven by strong commercial demand, but tempered by decreased military and regional/business jet demand. Commercial aerospace OEM production, which accounts for more than 40 percent of the segment's sales, continues to be robust and is expected to increase as the slope of aircraft build rates ramps. On the power front, IGT sales of both OEM components and spares showed an approximate 3 percent decline year over year. Contractual material pass-through pricing for the segment decreased by approximately $2 million over the past year, which also contributed to the decline in sales. From a performance standpoint, Investment Cast Products continued to extract greater value from some of the Company's most mature businesses by driving efficiencies and focusing on key operating metrics. 

Forged Products: Strongly driven by the addition of TIMET to the segment's top line, Forged Products third-quarter sales improved year over year by 23 percent, increasing to $1,026 million in the quarter, versus $833 million in the same period last year. Operating income grew by 51 percent to $261 million in the quarter, or 25.4 percent of sales, compared to $173 million, or 20.8 percent of sales, a year ago. TIMET continues to flourish and is not only growing in concert with the aerospace market, but has also gained additional market share with key customers. Aerospace sales increased by approximately 32 percent year over year, driven primarily by TIMET, with stable base sales. Similar to Investment Cast Products, component production schedules continue to hold steady until the next aircraft build ramp. The segment also continues to make good progress in power markets. Interconnect pipe sales grew by approximately 52 percent year over year, with a backlog now standing at nearly one year. Sales to the oil & gas market decreased slightly in the third quarter of fiscal 2014, compared to very rapid growth in the same quarter a year ago. The segment's three primary nickel-conversion mills saw alloy selling prices decline by approximately $38 million, and lower prices for revert and other alloys negatively impacted sales by approximately $8 million. Contractual material pass-through pricing fell year over year by approximately $2 million. Operational performance in the Forged Products segment significantly benefitted from solid improvements at TIMET, as well as continued cost discipline across the base businesses. 

Airframe Products: Airframe Products' sales improved by 23 percent year over year, with sales increasing to $722 million in the third quarter of fiscal 2014 from $588 million the previous year. Operating income was $216 million, or 29.9 percent of sales, in the third quarter, versus $178 million, or 30.3 percent of sales, in the same period last year. Segment aerospace sales were up by 27% percent, with strong, single-digit base sales growth, along with the addition of several acquisitions. Critical aerospace fastener and aerostructure shipments are now closely tracking the current base commercial build rates. In addition, fastener 787 shipments, now at an average of six shipsets per month, are continuing to close the gap with aircraft production schedules. Segment growth in aerospace sales will be tied to further ramps in aircraft production. While lower-margin acquisitions exerted a moderate drag on Airframe Products' year-over-year operating margins, the segment maintained its daily attack on improving performance and delivered solid base operational results, with incremental margins of more than 50 percent.

"In this past quarter, we faced some unprecedented dynamics." said Mark Donegan, chairman and chief executive officer of Precision Castparts Corp. "Customers significantly shifted delivery schedules very late in the quarter. We could not control this unusual activity, but our operations could and did respond to the reality as quickly and aggressively as possible. We managed our cost base, drove operational efficiencies, and performed well. Our customers have already begun to re-accelerate schedules in the new calendar year, and our operations are meeting this demand with an even better cost profile.

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