Precision Castparts (PCP) reported solid fiscal second-quarter results Thursday that showed strong sales and profit expansion. Though we liked the firm’s results, we’ll be looking to trim our position in our Best Ideas portfolio in the coming weeks, solely as a means of rebalancing our porfolio. Our fair value estimate remains unchanged.
The metal casting-maker’s third-quarter revenue advanced 19% from the same period a year ago on the heels of strong growth from its Investment Cast Products, Forged Products, and Fastener Products segments, the latter jumping 27%. The company’s top-line was driven by accelerated commercial production rates, market share gains, and a number of acquisitions that closed in the quarter, the latter bolstering its exposure to the oil and gas markets.
Operating income growth was fantastic, jumping 21% from the same period a year ago, while operating margins jumped 0.4 percentage points. Earnings-per-share increased 19%, to $2.03–slightly below concensus estimates but relatively in-line with our expectations. All things considered, profits were strong.
As we look forward, the most significant catalyst to continued commercial aerospace growth for Precision will be the 787 program, the first such aircraft delivered to ANA by Boeing (BA) in September. Industrial gas turbines will also grow steadily as OEMs will use higher PCC (Precision) dollar-content, and seamless pipe continues to see strong demand for niche oil and gas applications, with orders acclerating. Precision also indicated that order books for its fastener products are beginning to firm up, which we view positively.