(Reuters) - Aviation electronics systems supplier Rockwell Collins Inc (COL.N) forecast lower-than-expected earnings for 2014, citing federal government budget cuts and declining business jet revenue, and its shares fell about 5 percent.
The supplier of cockpit systems said on Friday that it expects profit of $4.30 to $4.50 per share on revenue of $4.5 billion to $4.6 billion for the fiscal year that begins October 1.
Analysts on average were expecting $4.85 per share on revenue of $4.99 billion, according to Thomson Reuters I/B/E/S.
Rockwell Collins is counting on commercial demand to drive growth as the United States curbs defense spending. In its most recent quarterly earnings report, its sales were roughly 51 percent government-related and 49 percent commercial.
The company said commercial systems sales would rise in the mid-single-digit percentage range next year, but government systems revenue would fall by mid-to-high-single-digit percentages.
Specifically, Rockwell said it expected budget cuts tied to across-the-board spending cuts under “sequestration” to hurt revenue by $200 million next year. That reduction could be partly offset by foreign defense sales, the company added.
RBC Capital Markets analyst Robert Stallard said in a note to clients on Friday that the Rockwell Collins defense outlook “sets a negative benchmark for other defense companies that have yet to give a 2014 forecast.”
Defense companies are having difficulty navigating the current Pentagon budget climate as acquisition programs are canceled or delayed. Many defense companies told a recent Reuters Summit that 2014 could bring more cuts in government spending as sequestration continues [ID:nL4N0GZ3SI].
Rockwell Collins has reduced its business in some defense segments and cut jobs as U.S. military spending waned.
But Stallard added that Rockwell’s aerospace business should be bolstered by the acquisition of Arinc, which designs systems that help airline pilots communicate with the ground.
In the company’s statement on Friday, Rockwell Collins Chief Executive Kelly Ortberg said the purchase of Arinc “creates a whole new growth platform for Rockwell Collins, enabling us to capitalize on the fast-growing information management market.”
Rockwell Collins shares, which had risen 17 percent in the last three months, were down 5 percent at $70.55 on Friday morning on the New York Stock Exchange.
Reporting by Karen Jacobs in Atlanta and Rohit T. K. in Bangalore; editing by John Wallace and Matthew Lewis