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UPDATE 1-Rockwell Collins warns of weak 2013 on potential defense cuts
September 21, 2012 / 3:35 PM / 5 years ago

UPDATE 1-Rockwell Collins warns of weak 2013 on potential defense cuts

Sept 21 (Reuters) - Rockwell Collins Inc, which supplies avionics and other electronic systems for commercial and military planes, said potential mandatory cuts to U.S. defense spending in 2013 will hit results next year.

The 2011 U.S. debt ceiling negotiations resulted in a complex agreement that could reduce U.S. defense spending starting Jan. 2, 2013.

“The potential (budget) sequestration impacts on U.S. defense budgets have created unprecedented uncertainty for all businesses that support the Department of Defense,” Rockwell Collins Chief Executive Clay Jones said.

Rockwell said it was planning a restructuring to cut costs beginning in 2013, including job cuts and plant optimization. The company will take a 30 cents per share charge in 2012 fourth quarter related to the restructuring and a writedown associated with the May bankruptcy of its customer, Hawker Beechcraft.

Rockwell said it would also buy back shares to maintain 2013 earnings in the same range as fiscal year 2012.

Top U.S. defense contractors reported lower second-quarter earnings in July, reflecting mounting pressure on U.S. defense budgets, but they largely beat expectations due to tough cost-cutting and share buybacks.

BUDGET IMPACT

Cedar Rapids, Iowa-based Rockwell said it expects to earn between $4.30 and $4.50 per share, on revenue of between $4.6 billion and $4.7 billion for 2013.

Analysts on average had expected earnings of $4.62 per share on revenue of $4.87 billion, according to Thomson Reuters I/B/E/S.

“Excluding the sequester, and assuming good execution, we think 2013 earnings may end up coming in close to where consensus currently is,” RBC Capital Markets’ defense analyst Rob Stallard wrote in a note.

Rockwell is the first company to include the possible impact of the budget deal into its forecast, he added.

Revenue from government systems, its largest segment, is expected to fall 10 percent, with about half of the decline resulting from the impact of sequestration, the company said.

Rockwell has seen several of its defense programs canceled in the face of budget cuts. Sales to government agencies have fallen for four straight quarters. [ID: nL2E8IO1ZC]

Shares of the company, which has a market value of $7.47 billion, were up 1 percent at $53.05 on Friday morning on the New York Stock Exchange.

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