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What's in Store for Rockwell Collins (COL) in Q2 Earnings?

Aviation electronics maker Rockwell Collins Inc. COL is slated to report second-quarter fiscal 2016 results on Apr 21 before the opening bell. In the last reported quarter, the company recorded a positive earnings surprise of 23.47%. In the trailing four quarters, three beats propelled the company to post an average positive surprise of 5.72%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Rockwell Collins is the foremost global supplier of communications and avionics equipment for both commercial and military customers. On its fourth quarter fiscal 2015 earnings call, the company had said that it expects to face near-term challenges in the first half of fiscal 2016. The timing of its Government Systems program was expected to result in declines in the first half but lead to growth in the second half of the fiscal. The Government Systems business will likely be down mid single digits in the first half of fiscal 2016.

Overall, fiscal second quarter revenues are expected to be much closer to flat or maybe down a little bit than last year’s second quarter.

Moreover, in Commercial Systems, the production cut on Bombardier Globals was expected to impact the entire year, while growth from new acquisitions was projected to benefit the second half primarily. The company also expected its overall business to continue growing throughout fiscal 2016 and deliver strong margin and cash flow performance.

On its first quarter conference call, Rockwell Collins boosted its earnings guidance for fiscal 2016 to the range of $5.45−$5.65 per share from the prior guidance of $5.20−$5.40 on total revenues of $5.3−$5.4 billion. Total segment operating margin was reiterated at about 21%.

The Federal R&D Tax Credit was permanently reinstated, retroactive to Jan 1, 2015, which led to the acknowledgment of an 18-cent retroactive benefit. Additionally, the company will likely continue to benefit from the Federal R&D Tax Credit throughout fiscal 2016. This was the reason behind the company’s raised guidance.

The company even increased its cash flow from operations projection to $750−$850 million from $700−$800 million earlier.

Earnings Whispers

Our proven model does not conclusively show that Rockwell Collins will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Ranks #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP for Rockwell Collins is -2.33% as the Most Accurate estimate is currently at $1.26 while the Zacks Consensus Estimate is pegged at $1.29.

Zacks Rank: Though Rockwell Collins currently carries a Zacks Rank #1, a negative ESP makes a beat difficult to predict.

Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

A Stock that Warrants a Look

Unlike Rockwell Collins we see a likely earnings beat coming from this industry peer.

Spirit AeroSystems Holdings, Inc. SPR has an earnings ESP of +6.6% and a Zacks Rank #2. The company is scheduled to report first-quarter 2016 results on Apr 29.

Other Upcoming Defense Releases

Textron Inc. TXT is expected to report first-quarter 2016 earnings on Apr 20, 2016.

Raytheon Co. RTN will report first-quarter 2016 earnings on Apr 28, 2016.

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ROCKWELL COLLIN (COL): Free Stock Analysis Report
SPIRIT AEROSYS (SPR): Free Stock Analysis Report
TEXTRON INC (TXT): Free Stock Analysis Report
RAYTHEON CO (RTN): Free Stock Analysis Report
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