Profits Up 9%, Rockwell Predicts a Strong Year
Rockwell International Corp., showing immediate benefits from shedding its semiconductor business, reported Tuesday that its first-quarter earnings rose 8.9% and predicted that results throughout the year will surpass Wall Street’s expectations.
The results signal a significant recovery for the Costa Mesa-based industrial giant, whose profits had plummeted for four quarters amid a sluggish semiconductor market.
Company officials attributed the gains, in part, to massive restructuring that Rockwell launched in June, which resulted in companywide layoffs and the Dec. 31 spin-off of its money-losing semiconductor unit, Conexant Systems Inc.
Since then, Rockwell has focused on developing its factory automation, electronic commerce and avionic divisions.
Excluding one-time items, profits from these continuing operations jumped to $134 million, or 70 cents a share, for the period ended Dec. 31, from $123 million, or 59 cents a share, for the same period a year earlier.
Analysts had expected the company to earn 63 cents a share, according to a survey by First Call Corp.
Sales rose slightly to $1.61 billion from $1.6 billion.
Rockwell said its avionics and communications units, whose sales climbed 22% to $563 million, helped fuel the earnings increase. The company’s avionics unit--headquartered in Cedar Rapids, Iowa--makes electronic systems for airplanes and in-flight entertainment systems. The division also has operations in Pomona.
Analysts had wondered whether the 1998 crash of a Swissair jetliner, thought to be partly caused by the high-tech entertainment system in its luxury cabin, would have a chilling effect on the avionics industry in general.
Rockwell officials say they haven’t felt any impact from the tragedy. Chief Executive Officer Don Davis noted that the company’s Passenger Systems group had booked $450 million in orders for the fiscal year ended Sept. 30, compared to $120 million for the previous year.
“If anything, [the Swissair crash] probably caused some people to pay attention to who they’re buying their in-flight systems from,” Davis said.
Rockwell now expects to expand its core businesses through acquisitions, Davis said. He pointed to Rockwell’s acquisition earlier this week of EJA Engineering Ltd., a manufacturer of safety products with headquarters in Wigan, England.
Despite Tuesday’s good news, analysts insist that Rockwell’s future remains challenging.
“Nobody sees that kind of [result] in the next three quarters,” said Nick Heymann, an analyst at Prudential Securities Inc. “They’re working overtime, but this is no party in industrial land.”
One area of concern is in its automation unit, which develops computerized equipment for factories. Rockwell, the automation leader in North America, has been hurt by sluggish demand.
Rockwell announced last week that in an effort to be closer to its core operations, it would move its corporate headquarters to the Midwest by this summer. The cost of the move will not affect the company’s estimate of fiscal 1999 net earnings of $2.90 to $3 per share, Davis said.
Analysts expect earnings of $2.83 a share, according to First Call.
Rockwell’s stock fell 13 cents on Tuesday, closing at $41 a share.
Bloomberg News contributed to this report.
