Precision Castparts (PCP) Misses Q3 EPS Views; Sees FY16 EPS Below Expectations

Precision Castparts (NYSE: PCP) reported Q3 EPS of $3.09, $0.32 worse than the analyst estimate of $3.41. Revenue for the quarter came in at $2.46 billion versus the consensus estimate of $2.56 billion.

"Our third quarter performance included some clear achievements, but we also faced some real challenges in several of our end markets," said Mark Donegan, chairman and chief executive officer of Precision Castparts Corp. (PCC). "On the plus side, we made solid progress on our production and development aircraft and engines programs, growing 6 percent year over year. In addition, our 7 percent growth in industrial gas turbines outpaced the market, given our higher content on new and upgrade platforms, as well as providing a steady supply of spares to the installed base.

"On the other hand, we took longer than expected in performing an upgrade of a major forging press, which is now up and running and fully functional. In addition, some of our commercial aerospace customers with December year-ends deferred shipments to January. These deferred shipments will ship in the fourth quarter.

"The third quarter also presented us with some significant uncertainties with our oil & gas sales and with one of our large aerospace customers," Donegan said. "We experienced rapid declines in demand from our oil & gas customers, and we cannot predict when this market will recover. In addition, our visibility to this aerospace customer's schedules is limited, and further reductions may occur.

"Factoring in the uncertainties we are facing, we currently expect our FY15 EPS from continuing operations to be in the range of $12.80 to $12.90," Donegan said. "We will be initiating a formal annual guidance program with our Q4 earnings call in May. Our current outlook for FY16 is that our results will be below our previously stated EPS target range of $15.50 to $16.50, after including cash deployment to date. However, we expect that our FY16 EPS from continuing operations will demonstrate growth over FY15. We anticipate FY16 growth to be driven by effective leverage of IGT market share gains, aerospace build rate expansions, initial production of next-generation engines, and strong cash generation and deployment to acquisitions and share repurchases. Uncertainties that impact our FY15 and FY16 outlooks include military demand, customer inventory management, oil & gas demand and items such as currency and pension expense. A complete discussion of the impact of these dynamics will occur during our initial guidance presentation in May."

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