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Precision Castparts Corp. Reports Operating Results (10-Q)

February 11, 2011 | About:
10qk

10qk

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Precision Castparts Corp. (PCP) filed Quarterly Report for the period ended 2011-01-02.

Precision Castparts Corp. has a market cap of $20.73 billion; its shares were traded at around $149.49 with a P/E ratio of 21.3 and P/S ratio of 3.7. The dividend yield of Precision Castparts Corp. stocks is 0.1%. Precision Castparts Corp. had an annual average earning growth of 19.9% over the past 10 years.Hedge Fund Gurus that owns PCP: Bruce Kovner of Caxton Associates, Tom Russo of Gardner Russo & Gardner, George Soros of Soros Fund Management LLC, Steven Cohen of SAC Capital Advisors. Mutual Fund and Other Gurus that owns PCP: Westport Asset Management, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Mario Gabelli of GAMCO Investors, Jeff Auxier of Auxier Focus Fund, Jean-Marie Eveillard of First Eagle Investment Management, LLC, Ron Baron of Baron Funds, Pioneer Investments, Jeremy Grantham of GMO LLC, RS Investment Management, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Sales for the third quarter of fiscal 2011 were $1,590.3 million, up $225.7 million, or 16.5% from $1,364.6 million in the same quarter last year. The increase in sales was driven by strong aerospace recovery of approximately $158 million, or 21%, as our aerospace customer order schedules have aligned with aircraft delivery schedules, driving higher volumes and better operating leverage. General industrial sales increased approximately $69 million, or 27%, due to market strength and market share gains. Industrial gas turbine (“IGT”) sales also contributed to the increase over the prior year. These increases were partially offset by lower seamless pipe sales in the current quarter, decreasing approximately $47 million, or 34%, year over year. Contractual material pass-through pricing increased sales by approximately $55 million in the current quarter versus approximately $60 million in the same quarter last year. Contractual material pass-through pricing adjustments are calculated based on average market prices as shown in the above table in trailing periods ranging from approximately one to twelve months. Higher external selling prices of nickel alloy from the Forged Products segment's three primary mills, which increased 35% on the London Metal Exchange (LME) compared to the same quarter last year, added approximately $27 million to top-line revenues in the current quarter versus a year ago.

Net income from continuing operations attributable to PCC for the third quarter of fiscal 2011 was $258.7 million, or $1.80 per share (diluted) compared to net income from continuing operations attributable to PCC for the third quarter of fiscal 2010 of $228.6 million, or $1.61 per share (diluted). Net income attributable to PCC (including discontinued operations) for the third quarter of fiscal 2011 was $256.5 million, or $1.78 per share (diluted), compared with net income attributable to PCC of $232.9 million, or $1.64 per share (diluted), in the same period last year.

On September 30, 2009, we completed the acquisition of Carlton Forge Works and a small, related entity for approximately $847 million in cash, comprised of approximately $502 million of cash on hand (reduced $3 million due to subsequent working capital adjustments) and the proceeds of approximately $345 million of commercial paper debt issuance (subsequently repaid). Carlton, a leading manufacturer of seamless rolled rings for critical aerospace applications, offers nickel, titanium, and steel rolled rings across the widest range of product sizes in the industry. Carlton broadens our forging capabilities and enables us to provide a full range of forged products to our aerospace engine customers. The Carlton acquisition is an asset purchase for tax purposes and operates as part of our Forged Products segment. This transaction resulted in $400.1 million of goodwill (which is deductible for tax purposes) and $336.7 million of other intangible assets, including tradenames with indefinite lives valued at $89.1 million, customer relationships with indefinite lives valued at $204.8 million, customer relationships with finite lives

Investment Cast Products' sales increased 18.3% from $454.7 million in the third quarter of fiscal 2010 to $537.7 million this year. Operating income increased 24.2% from $137.5 million in the third quarter of fiscal 2010 to $170.8 million in the same quarter this year. Operating income as a percent of sales increased from 30.2% to 31.8% of sales. Year-over-year, aerospace sales increased approximately $81 million, or 31%, due to increasing volume on long-lead time castings for the base commercial aircraft programs after an extended period of customer destocking. IGT sales were relatively flat year over year. The segment's operating income as a percent of sales increased by 1.6 percentage points over the prior year driven by aerospace volume growth, combined with strong productivity and other variable cost improvements in the segment's manufacturing operations, decreased labor rates and increased utilization of lower cost manufacturing in Mexico. Contractual pricing related to pass-through of increased material costs was approximately $13 million in the third quarter of fiscal 2011 as compared to approximately $10 million in the same period last year. Contractual material pass-through pricing diluted operating margins by 0.8 percentage points in the third quarter of fiscal 2011 compared to 0.7 percentage points in the third quarter of fiscal 2010.

Forged Products' sales were $708.5 million for the quarter, an increase of 20.7%, compared to sales of $587.0 million in the third quarter of fiscal 2010. Operating income increased 4.0% from $136.4 million in the third quarter of fiscal 2010 to $141.8 million in the same quarter this year, while operating income as a percent of sales decreased from 23.2% to 20.0%. Similar to Investment Cast Products, this segment continues to see a recovery of aerospace customer order schedules, signaling an end to customer destocking, as sales improved by approximately $69 million, or 27%, year-over-year. General industrial sales showed significant improvement from last year's lows, increasing approximately $56 million, or 49%, over the prior year, due to both improving world economies and market share gains. IGT sales also increased year over year in this segment. Offsetting these increases was a significant decline in seamless pipe sales of approximately $47 million, or 34%, as Chinese customers continue to utilize existing inventory. Contractual material pass-through pricing contributed approximately $39 million of sales in the third quarter of fiscal 2011 compared to approximately $48 million of sales in the prior year. Higher external selling prices of nickel alloy from the segment's three primary mills, which increased 35% on the London Metal Exchange (LME) compared to the same quarter last year, added approximately $27 million to top-line revenues in the current quarter versus a year ago. Operating income as a percent of sales decreased 3.2 percentage points compared to a year ago due to the negative impact of reduced seamless pipe volume coupled with growth in the segment's lower margin general industrial markets. Contractual pass-

Sales for the first nine months of fiscal 2011 were $4,545.2 million, up $519.7 million, or 12.9% from $4,025.5 million in the same period last year. The increase in sales was driven by strong aerospace recovery of approximately $426 million, or 20%, as our aerospace customer order schedules have aligned with aircraft delivery schedules, driving higher volumes and better operating leverage. Carlton, which was acquired in the third quarter of fiscal 2010, accounted for approximately 38% of the increase in aerospace sales. General industrial sales increased approximately $220 million, or 30%, due to market strength and market share gains. These increases were partially offset by lower seamless pipe sales in the current period, decreasing approximately $168 million, or 42%, year over year. European IGT destocking also partially offset the increase in sales. Contractual material pass-through pricing increased sales by approximately $165 million in the first nine months of fiscal 2011 versus approximately $189 million in the same period last year. Contractual material pass-through pricing adjustments are calculated based on average market prices as shown in the above table in trailing periods ranging from approximately one to twelve months. As a result of increased nickel prices on the London Metal Exchange (LME), which increased 39% compared to the same period last year, external selling prices of nickel alloy from the Forged Products segment's three primary mills added approximately $60 million to top-line revenues in the first nine months of fiscal 2011, versus the same p

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