Download - Precision Cast Pvt. Ltd
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Fiscal 2015 Q4 Earnings
May 13, 2015
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Precision Castparts Corp. 2
Forward-Looking Statements
Information included within this press release describing the projected growth and future results and events
constitutes forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995.
Actual results in future periods may differ materially from the forward-looking statements because of a number of risks
and uncertainties, including but not limited to fluctuations in the aerospace, power generation, and general industrial
cycles; the relative success of our entry into new markets; competitive pricing; the financial viability of our significant
customers; the concentration of a substantial portion of our business with a relatively small number of key customers;
the impact on the Company of customer or supplier labor disputes; demand, timing, and market acceptance of new
commercial and military programs, and our ability to accelerate production levels to meet order increases on new or
existing programs in a timely fashion; the availability and cost of energy, raw materials, supplies, and insurance; the
cost of pension and postretirement medical benefits; equipment failures; product liability claims; cybersecurity threats;
relations with our employees; our ability to manage our operating costs and to integrate acquired businesses in an
effective manner, including the ability to realize expected synergies; the timing of new acquisitions; misappropriation of
our intellectual property rights; governmental regulations and environmental matters; risks associated with
international operations and world economies; the relative stability of certain foreign currencies; fluctuations in oil &
gas prices and production; the impact of adverse weather conditions or natural disasters; the availability and cost of
financing; and the implementation of new technologies and process improvements. Any forward-looking statements
should be considered in light of these factors. We undertake no obligation to update any forward-looking information
to reflect anticipated or unanticipated events or circumstances after the date of this document.
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Precision Castparts Corp. 3
Challenging end to FY15 in select power markets
Oil & gas and pipe volume, pricing and mix headwinds
Decisive actions taken to respond to tougher market conditions
Right-sized operations
Exiting underperforming investments
Evaluated inventory positions
Commercial Aero/Industrial Gas Turbine (IGT) long-term trends intact
Returned $729M cash to shareholders in Q4 FY15: total return of $1.6B in FY15
PCC Board of Directors added $2B to share repurchase authorization
Targeting completion over next 12-18 months
Focused on executing FY16 outlook, with capital deployment upside
Q4 FY15 Overview
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Precision Castparts Corp. 4
Q4 FY15 Consolidated Summary $ Millions, except EPS Q4 FY15 Q4 FY14 ChangeNet Sales $ 2,504 $ 2,519 (1) %Consolidated Segment Operating Income $ 490 $ 718 (32) %
Margin % 19.6 % 28.5 % (890) bp
Earnings Per Share from Continuing Operations (diluted) $ 1.06 $ 3.27 (68) %Adjusted Consolidated Segment Operating Income $ 625 (1) $ 718 (13) %
Adjusted Margin % 25.0 % 28.5 % (350) bp
Adjusted Earnings Per Share from Continuing Operations (diluted) $ 2.94 (2) $ 3.27 (10) %
Y-O-Y Q4 Sales Performance Y-O-Y Q4 Operating Income
Oil & gas and pipe challenges in Forged Products maskedperformance improvement throughout balance of operations
Negative impact of volume leverage, weaker productmix, and higher-cost material remaining in inventory
Decisive action taken to align oil & gas cost modelwith demand level
Strong 40-50% incremental operating margin in InvestmentCast and Airframe Products
Q4 FY15 currency headwinds of ~ $10M
Y-O-YChange Comments
Aerospace 2 % Large commercial +2% reported; +5% excludingimpact from single customer destocking
Increased regional/business jet
Military mid-single-digit decline
Power (7)% IGT +2%
Pipe: (11%)
Oil & gas sales: (25%)
General Industrial &Other (5)%
Total Reported Sales (1)%
Adjust: Currency 2 % ~ $46M negative impact
Adjust: Acquisitions (2)% ADI
Adjust: Metal 1 % $22M lower metal pricing
Organic Growth(Constant Currency)
Flat 3% organic excluding customer destocking andoil & gas
(1) Excludes $135 million of pre-tax charges related to restructuring and asset impairment charges announced on April 15, 2015. See Non-GAAP Financial Measures in the Appendix.(2) Excludes $1.88 per share of after-tax charges related to asset impairment and valuation charges announced on April 15, 2015. See Non-GAAP Financial Measures in the Appendix.
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Precision Castparts Corp. 5
Investment Cast Products$ Millions Q4 FY15 Q4 FY14 Change
Sales $ 648 $ 629 3 %
Operating Income $ 233 $ 224 4 %
Operating Margin 36.0 % 35.6 % 40 bp
Y-O-Y Q4 Operational Performance
Strong leverage of commercial aero and IGT volumegrowth
~ 40%+ incremental operating income margin
Q4 FY15 currency headwinds of ~ $1M
Y-O-Y Q4 Sales Performance
Y-O-YChange Comments
Aerospace Flat Large commercial down low-single digits
- Driven by decline in spares of >15%
- OEM demand flat
Regional/business jet up strong double digits
Military stable
Power 10% Driven by IGT
Total Reported Sales 3%
Adjust: Currency 1% ~ $6M of negative impact
Sales Growth (ConstantCurrency)
4%
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Precision Castparts Corp. 6
Forged Products$ Millions Q4 FY15 Q4 FY14 Change
Sales $ 1,067 $ 1,109 (4) %
Operating Income $ 193 $ 300 (36) %
Operating Margin 18.1 % 27.1 % (900) bp
Y-O-Y Q4 Sales Performance Y-O-Y Q4 Operational Performance
TIMET Morgantown update
Single electron beam furnace out of commission EBIT impact: ~ $4M in Q4 FY15; ~ $25M-35M in
FY16
Expect to meet all critical aerospace demand, butwith higher cost
Challenging oil & gas and pipe
Negative mix shift, compounded by higher costmaterial remaining in inventory
Actions taken to align cost base with activity level Competitive pricing environment
Aerospace and IGT demand drivers remain in place
Q4 FY15 currency headwinds of ~ $4M
Y-O-YChange Comments
Aerospace 1 % Large commercial up low-single digits,despite continued destocking at singleaerospace customer
Regional/business jet up high-single digits
Military down mid-single digits
Power (18)% Oil & gas and pipe down ~ 20%
IGT OEM lower due to absence of customer'sQ4 FY14 retrofit
General Industrial &Other (1)%
Total Reported Sales (4)% Primarily driven by oil & gas and pipe
Adjust: Currency 2 % ~ $20M of negative impact
Adjust: Metal 2 % $21M lower metal pricing
Sales Growth (ConstantCurrency & Metal)
Flat
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Precision Castparts Corp. 7
Airframe Products$ Millions Q4 FY15 Q4 FY14 Change
Sales $ 789 $ 781 1 %
Operating Income $ 237 $ 232 2 %
Operating Margin 30.0 % 29.7 % 30 bp
Y-O-Y Q4 Sales Performance Y-O-Y Q4 Operational Performance
Strong leverage of commercial aerospace volume growth
~ 50% incremental EBIT margin
Q4 FY15 currency headwinds of ~ $5M
Y-O-YChange Comments
Aerospace 4 % Large commercial up high-single digits
Military down low-double digits
Contribution of ADI acquisition
General Industrial &Other (15)% Soft construction and pulp and paper demand
Total Reported Sales 1 %
Adjust: Currency 3 % Includes ~ $20M of currency headwind
Adjust: Acquisitions (6)%
Organic Sales (ConstantCurrency)
(2)% Stable organic large commercial aerospacedemand
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Precision Castparts Corp. 8
$ Millions March 29, 2015 December 28, 2014 Q4 Change
Cash $ 474 $ 430 $ 44
Debt 4,587 4,147 (440)
Add:
Net cash utilized for stock repurchase program (1) 729
Total net change in cash, excluding cash utilized forstock repurchase program $ 333
Cash and Debt Position for Q4 FY15
(1) Includes $729M to repurchase 3,480,627 shares during the quarter at an average price of $209.35 per share, of which $8 million was settled after quarter-end.
Strong cash flow generation and accretive deployment actions in the quarter
Increased capex investments for Aerostructures capacity, and TIMET and Wyman-Gordon cost improvements
Returned $729M cash to shareholders via share repurchases in Q4 FY15: total return of $1.6B in FY15
PCC Board of Directors added $2B to share repurchase authorization
Targeting completion in next 12-18 months
Q1 FY16 Activity:
Spent $270M to acquire two small businesses Continuing expansion of vertical integration capability
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Precision Castparts Corp. 9
Q4 FY15 Charges
ITEM PRETAX AFTERTAX COMMENTS
Chengde Impairment (1) $174 $179 Goodwill and other asset impairments
Results remain in Equity in Earnings of Unconsolidated Affiliatesuntil exit completed
Inventory and Other AssetImpairments
127 81 Adjusts value of oil & gas-focused raw material, reflectingtougher final product pricing environment
Revalues pipe inventory and other assets to reflect currentmarket value
Restructuring 8 5 $30M-35M annual cost savings; ~ $0.15/share benefit to FY16
Total $309 $265
EPS Impact $1.88
(1) PCC maintains a 50% ownership of Yangzhou Chengde Steel Tube Co. LTD, a large-diameter, pipe-manufacturing joint venture in China. This charge islower than the originally disclosed estimated range of $210M-220M due to finalization of the analysis. The charge also includes a small impairmentassociated with an unrelated joint venture.
$ in millions, except EPS
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Precision Castparts Corp. 10
FY16 Financial Guidance Summary
*Free cash flow defined as cash from operations, less capital expenditures
$B, expect per share and percentage metrics
FY16 Comments
Sales $10.0 10.4
% change year-over-year +0 4% Primarily organic
Operating Income Margin 26.6 27.3%
Basis point change year-over-year (80) - (10) Margin expansion at Investment Cast and Airframe Products
EPS from Continuing Operations $12.50 13.40
% change year-over-year (1%) 6%
Free Cash Flow* ~ $1.4 1.5 Includes capital expenditures of ~ $550M
Planning Assumptions
Diluted shares: 137.9M
Tax rate: ~ 32.5%
Net interest expense: $70M
Pension: Stable vs. FY15
Currency: Euro 1.05
Pound 1.45
Chengde continues to be reported in "Equity in Earnings of Unconsolidated Affiliates" line until exit finalized
Combined ~ $230M sales headwind and ~ $52M EBIT impact in FY16
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Precision Castparts Corp. 11
FY16 End Market Assumptions
AEROSPACE
Commercial Military Regional/Business Jet
Key Drivers:
Sales % ChangeFY16 vs. FY15: Up mid-single digit Flat +/- Up high-single digit
Initial activity tosupport higher buildrates on 787, A320, 737
Continued A350 ramp
Activity builds on LEAP
Aerostructures sharegains
Lower A330 activity
Stable spares and OEMactivity
Initial activity on newlarge cabin programs atGulfstream andBombardier
Market share gains inlarge cabin
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Precision Castparts Corp. 12
FY16 End Market Assumptions
POWER GENERAL INDUSTRIAL
IGT Oil & Gas and Other(1)
Key Drivers:
Sales % ChangeFY16 vs. FY15: Up high-single digit Down > 30% Flat +/-
Continued activity rampon H-class and upgradeprograms
Stable spares
Weak demand andcompetitive pricing inoil & gas
Softer demand fromChina power pipemarkets
Selected sub-marketshave second derivativeoil & gas risk
(1) Includes interconnect pipe
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Precision Castparts Corp. 13
Investment CastProducts
Forged Products Airframe Products
Outlook Drivers/ KeyConsiderations
Sales Outlook vs. FY15 Mid-single digit growth Low-single digit decline Mid-single digit growth
Operating IncomeMargin Outlook vs. FY15
Incremental operatingmargin > typical 35-40%
Modest margin expansionvs. Q4 FY15
Incremental operatingmargin > typical 35-40%
IGT OEM and retrofitactivity
Commercial aero buildrates
Initial LEAP activity
FY16 Outlook Drivers by Segment
TIMET share gainscontinue to flow
Difficult demand andpricing in oil & gasmarkets
TIMET Morgantown:$25-30M cost negative
Currency sales/EBITheadwind
Normal Q2 outagesplus extended outageat Wyman-Gordon UK
Share gains and buildrates on largecommercial andbusiness jet
Currency sales/EBITheadwind
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Precision Castparts Corp. 14
INTERNALINVESTMENT
Investment in internal projects for growth, cost reductions, and safety
Capital Allocation Framework
ACQUISITIONS Pursue acquisitions that fit core competencies and meet return criteria
SOUND BALANCESHEET
Strong investment-grade, credit-rating profile through all phases of the cycle Flexibility to respond as strategic cash deployment opportunities arise
SHAREREPURCHASES
Return excess cash to shareholders once above objectives are met Expect lower share count over time
Unquestioned Financial Strength with Upside from Effective Capital Deployment
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Precision Castparts Corp. 15
Deployed ~ $8.5B to M&A from FY12-Q1 FY16,expanding capabilities and improving coststructure
Rigorous evaluation framework and provenintegration practices
Established leadership positions in coreaerospace and power markets
Leveraged new capabilities to capture value viacost and market share
M&A Framework
Actively pursuing complementary acquisitions,large and small
Value creation opportunity driven by leadershippositions
Disciplined buyer
Numerous attractive opportunities
Targeting $3B-5B over next two years
Successful M&A Track Record M&A Remains Top Priority
Airframe Products illustration:Mid-Teens IRR on $5B+ Net Investment over 12 Years
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Precision Castparts Corp. 16
Summary
Strong fundamentals remain intact
Balanced portfolio is key Aero and IGT growth drivers well-established
Concrete actions taken to position PCC for profitable growth
Funded restructuring, adjusted asset valuations
Continual focus on daily metrics to drive efficiency gains
Further strategic capital deployment
M&A the central focus, with share repurchase as an important complement PCC Board of Directors added $2B to share repurchase authorization with targeted
completion over next 12-18 months
Expect to reduce share count
Well-positioned to continue to deliver profitable growth beyond fiscal 2016
Supportive end markets, plus capital deployment upside
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Questions
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Precision Castparts Corp. 18
Appendix
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Precision Castparts Corp. 19
Non-GAAP Financial Measures Financial measures that exclude the impact of restructuring and asset impairment charges are non-GAAP (Generally Accepted Accounting Principles inthe United States) measures. To provide investors with a broader understanding of consolidated operating income earnings, the Company is providingadjusted consolidated segment operating income and adjusted earnings per share from continuing operations (diluted), excluding restructuring andasset impairment charges recognized during the quarter, along with the GAAP measure of consolidated segment operating income and earning pershare from continuing operations (diluted), because the excluded items are infrequent in nature.
Management believes that measuring consolidated segment operating income and earnings per share from continuing operations (diluted) without therestructuring and asset impairment charges is important to investors because by separating out items that are infrequent in nature, the adjustedmeasure presents investors with a clearer comparison of the underlying consolidated segment operating income and earnings per share fromcontinuing operations (diluted) against results of other periods.
A reconciliation of non-GAAP financial measures to the comparable GAAP measures is as follows:
(Unaudited; in millions, except per share data)
Adjusted Consolidated Segment Operating Income $ 625
Less: Impairment charges related to inventory and other assets 127
Restructuring charges 8
Consolidated Segment Operating Income $ 490
Adjusted Earnings per Share from Continuing Operations (diluted) $2.94
Less: Impairment charge related to Chengde 1.27
Impairment charges related to inventory and other assets 0.58
Restructuring charges 0.03
Earnings per Share from Continuing Operations (diluted) $1.06
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Precision Castparts Corp. 20
FY15 Sales by Market
Aerospace:70%
GeneralIndustrial& Other:
13%
Power:17%
IGT: 55%
Oil & Gas andOther : 45%
LargeCommercial:80%
Regional &Business: 7%
Military: 13%
As of March 29, 2015
(1) Includes interconnect pipe
(1)
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