Aerospace and defense company Goodrich
While the company reported revenue growth of about 12% for the quarter, a complex mix of charges, one-time items, and tax benefits resulted in net reported earnings of $0.30 a share -- better than last year's similarly reported $0.19 per share. Although these charges add some unwelcome opacity to the true state of the company's growth, operating income (a slightly "cleaner" measure) grew about 21% from last year.
Results were boosted by improved margins (both gross and operating) as a modest recovery in the aviation business has allowed the company to operate a bit more efficiently. While free cash flow for 2004 was down to $264 million (from $428 million a year ago), the company was still able to repay about $312 million in long-term debt during the year.
While Goodrich posted double-digit revenue growth in its engine systems and electronic systems businesses, airframe systems was a bit softer for the period. Contributions from defense spending also helped, with military and space sales growing 14%.
Coming out of a multiyear slump exacerbated by post-9/11 fears and reduced leisure air travel, the commercial aviation business seems to be recovering. If Boeing
Nevertheless, the aviation equipment business is intensely competitive, and Goodrich will be hard-pressed to organically grow its market share. Accordingly, long-term annual revenue growth of 10% or more may prove to be extremely difficult. Lean manufacturing and better overall margin performance will therefore be critical to Goodrich's future profit growth.
Management's own guidance for 2005 provides a window into that phenomenon. While sales growth is expected to come in at 6 to 8%, the company is looking for EPS growth of 23 to 38%.
Whether one looks at the trailing P/E or trailing EV-to-FCF ratio, the valuation numbers on Goodrich look high. Then again, as we have discussed previously on The Motley Fool, companies coming out of cyclical downturns often appear to have inflated valuations. For Fools with a conviction about overall improvement in commercial aviation, Goodrich might offer more than just a wing and a prayer, but this Fool will be staying on the ground for now.
Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned.