Goodrich Corporation (

GR

)

Q3 2010 Earnings Call Transcript

October 21, 2010 10:00 am ET

Executives

Paul Gifford – VP, IR

Marshall Larsen – Chairman, President and CEO

Scott Kuechle – EVP and CFO

Analysts

David Strauss – UBS

Doug Harned – Sanford Bernstein

Myles Walton – Deutsche Bank

Rama Bondada – Royal Bank of Canada

Sam Pearlstein – Wells Fargo

George Shapiro – Access 342

Eric Hugel – Stephens

Seth Seifman – J.P. Morgan

Jason Gursky – Citi

Carter Leake – Davenport & Company

Ken Herbert – Wedbush

Colin Campbell – Société Générale

Rob Spingarn – Credit Suisse

Ron Epstein – Banc of America/Merrill Lynch

Presentation

Operator

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» Goodrich Corporation, Q3 2009 Earnings Conference Call

Good day everyone and welcome to the Goodrich third quarter 2010 results conference call. Today's call is being recorded. The press has been invited to participate in today’s conference in a listen-only mode. At this time, for opening remarks and introductions, I'd like to turn the call to Vice President of Investor Relations, Mr. Paul Gifford. Please go ahead, sir.

Paul Gifford

Thank you Kelly and thank you for joining us today as we discuss our third quarter 2010 results. In the room with me today are Marshall Larsen, Chairman, President and CEO and Scott Kuechle, our CFO. We will start a few brief prepared remarks followed by Q&A. The presentation is available on our website at www.goodrich.com which together with our press release provides the basis for most of our remarks.

Before we start, let me remind you that today's remarks include forward-looking statements that involve risks and uncertainties and actual results could differ materially from those projected in the forward-looking statements. The risks and uncertainties are detailed from time to time in our reports filed with the Securities and Exchange Commission, including our annual report on Form 10-K and quarterly reports on Form 10-Q. They are also detailed in today's earnings press release. I urge you to read them carefully. This conference call is being webcast and replays will be available at our internet site beginning this afternoon.

Once again, we ask that callers limit themselves to one question so that we can have time to allow all of you to ask your questions. If you have further unanswered questions, you can get back into the queue and ask another question, time permitting.

Now, I'll turn the call over to Marshall who will provide you with an overview of our third quarter 2010 results, our updated full year 2010 outlook and our outlook for 2011.

Marshall Larsen

Thanks, Paul. You've all had the opportunity to review today's earnings release and the related presentation. There's a lot of information in both of these documents that you'll find helpful as you think about Goodrich.

Today, I'll spend a few minutes on our third quarter results and our outlook for 2010, then I'll turn to our outlook for 2011 and discuss its drivers. We continued our strong performance during the third quarter, our sales growth of 6% was accompanied by net income growth of 10%. All of our major market channels, including the commercial after market reported year-over-year sales growth.

Our large commercial airplane original equipment market channel group grew by 2% and that growth was relatively evenly split between Boeing and Airbus. Our regional business in general aviation original equipment sales increased by about 21%, including sales associated with the recent acquisition of DeCrane's Cabin Management assets. Organic growth in this market channel was about 15%.

Commercial aftermarket sales were 3% higher than the third quarter last year and 2% higher than in the second quarter of 2010. Six of our eight commercial businesses reported higher aftermarket sales in the third quarter 2010 compared to the year-ago period.

Our defense and space sales continued to exhibit good growth in the third quarter of 2010 increasing by 12% compared to the third quarter 2009. Our acquisition of Atlantic Inertial Systems contributed 8% of this growth. Organic sales growth of about 4% was driven primarily by strong sales in our wheels and brakes, aerostructures and sensors and integrated systems businesses.

In the third quarter of 2010, we achieved segment operating income margins of 17.3%, compared to 15.8% in the third quarter of 2009. The improvement was due to strong operational performance, relentless pursuit of continuous improvement and favorable revisions in estimates for certain long-term contracts.

Net cash provided by operating activities minus capital expenditures for the third quarter 2010 was very strong at $204 million, which is approximately 128% of third quarter net income. Since last July, we've taken several additional steps to increase shareholder value. Among them, in October, our Board of Directors approved a 7% increase in our company's quarterly dividend to $0.29 per share from the previous level of $0.27 per share on its common stock.

This is our fourth consecutive annual increase in our dividend. In September, we completed the acquisition of the Cabin Management Assets of DeCrane Holdings Company. The purchase price was approximately $280 million. We expect this acquisition to be neutral to earnings in 2010 and to be accretive beginning in the first quarter, 2011.

And in September, we issued $600 million of 10-year debt at 3.6% interest. We used the proceeds to complete the redemption of $257 million of debt due in 2012, which carried a 7.6% interest rate. And we are accelerating $300 million of pension contributions into the fourth quarter of 2010.

For our full year 2010 outlook, we have adjusted our sales outlook to approximately $7 billion which represents growth of about 5% compared to 2009. The outlook for 2010 net income per diluted share has been adjusted to $4.30 to $4.35 compared to the prior outlook of $4.30 to $4.45. Current outlook includes debt redemption costs of approximately $0.18 per diluted share which were not included in the prior outlook and will be recognized in the fourth quarter, 2010.

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