QUOTE AND NEWS
Market Intelligence Center  Aug 19  Comment 
A covered call identified by MarketIntelligececenter.com's patented algorithm on Precision Castparts Corp. (PCP) could yield about 2.60% (15.81% annualized, for comparison purposes only) in 60 days. Pair a long position in the stock with the Oct....
Market Intelligence Center  Aug 13  Comment 
The patented algorithms that power MarketIntelligenceCenter.com's Artificial Intelligence Center found a trading opportunity with Precision Castparts Corp. (PCP) that should provide a 4.75% return in just 129 days. Sell one Dec. '14 call at the...
Market Intelligence Center  Aug 5  Comment 
Precision Castparts Corp. (PCP) presents a trading opportunity that offers a 3.54% return in just 137 days. A covered call on Precision Castparts at the $220.00 level expiring on Dec. '14 offers an assigned return rate of 3.54% or 9.43%...
Market Intelligence Center  Jul 30  Comment 
After closing Tuesday at $231.41, Precision Castparts Corp. (PCP) presents an attractive opportunity to get a 2.77% return in just 52 days, which is an annualized return of 19.41% (for comparison purposes only). To enter this trade, sell one Sep....
SeekingAlpha  Jul 24  Comment 
Precision Castparts (NYSE:PCP) Q1 2015 Earnings Call July 24, 2014 10:00 am ET Executives Mark Donegan - Chairman and Chief Executive Officer Shawn R. Hagel - Chief Financial Officer, Principal Accounting Officer, Executive Vice...
TheStreet.com  Jul 24  Comment 
NEW YORK (TheStreet) -- Precision Castparts shares are down -5.9% to $235.26 on Thursday after missing analysts first quarter revenue estimates.The company reported first quarter earnings from continuing operations of $3.35 per diluted share, in...
Forbes  Jul 24  Comment 
The worst performing sector as of midday Thursday is the Materials sector, not showing much of a gain. Within that group, Precision Castparts (NYSE: PCP) and Freeport-McMoran Copper & Gold (NYSE: FCX) are two large stocks that are lagging, showing...
newratings.com  Jul 24  Comment 
WASHINGTON (dpa-AFX) - Metal components and products maker Precision Castparts Corp. (PCP) reported steady sales growth year-over-year in its key end markets for the first quarter of fiscal 2015 and continued to strongly leverage increasing...
Forbes  Jul 23  Comment 
Wall Street is expecting higher profit for Precision Castparts when the company reports its first quarter results on Thursday, July 24, 2014. The consensus estimate is calling for profit of $3.35 a share, a rise from $2.88 per share a year ago.The...
Market Intelligence Center  Jul 8  Comment 
After Monday’s trading in Precision Castparts Corp. (PCP) the algorithms behind MarketIntelligenceCenter.com's Artifical Intelligence Center picked out a trade that offers a 2.75% or 13.56% (for comparison purposes only), while providing 4.70%...




 

Precision Castparts Corp. (NYSE:PCP) makes specialized metal products for the aerospace and power generation industries. PCP's large, complex structural investment castings, airfoil castings, and forged components are used in jet aircraft engines and industrial gas turbines (IGT). Large jet aircraft engines are manufactured by a small number of suppliers, including General Electric, Pratt & Whitney, and Rolls-Royce. Because of the complexity of its castings, and their end-use in dangerous machinery, PCP has long-term relationships with the companies that buy its products. It has been supplying large castings for jet engines to GE for more than 40 years and Pratt & Whitney for 30+ years, while supplying smaller structural castings to Rolls-Royce for over 25 years. The company earned $5.5 billion in revenue and $922 million in net income in 2010.[1]

PCP uses a number of raw materials to make its castings, including certain metals such as cobalt, titanium, nickel, tantalum and molybdenum, which are found in only a few parts of the world and are available from a limited number of suppliers.[2] To combat the risk of rising input costs, PCP acquired Special Metals Corporation (SMC), a world leader in the production of high-performance, nickel-based alloys and super alloys. SMC, in conjunction with PCP's existing high performance alloy production facilities in western Australia and the U.S., made PCP the world’s largest and most diversified producer of high performance nickel-based alloys, supplying over 5,000 customers.

Company Overview

Products[3]

Precision Castparts manufactures complex metal components and products primarily for aerospace, power generation, general industrial and automotive markets. It operates in three segments: Investment Cast Products (34% of sales), Forged Products (41%), and Fastener Products (25%).

Their Investment Cast Products segment includes their subsidiaries PCP Structurals, PCP Airfoils and Specialty Materials and Alloys Group (SMAG). These operations manufacture investment castings for aircraft engines, industrial gas turbine engines, airframes, medical prostheses and other industrial applications primarily in the aerospace and power generation markets. The segment also provides alloys and waxes to PCP’s investment casting operations, as well as to other investment casting companies.

Forged Products’ aerospace and industrial gas turbine (IGT) sales are primarily derived from the same large engine customers served by the Investment Cast Products segment, with additional aerospace sales to manufacturers of landing gear and other airframe structural components. In addition, PCP manufactures high performance nickel-based alloys used to produce forged components for aerospace and non-aerospace markets, which include products for oil and gas, chemical processing, and pollution control applications.

PCP’s IGT products consist of airfoil castings and high-temperature combustion hardware used in large, land-based gas turbines designed for electrical power generation. In addition, they manufacture structural and airfoil castings for aeroderivative gas turbine engines, which are also used for power generation, as well as for other commercial and military land and marine-based applications. Since industrial gas turbines are primarily used in electrical power generation, castings sales for new IGT engines are tied to the growth of global electricity consumption, while demand for replacement parts depends on the size and utilization rate of the installed base.

With the acquisition of SPS Technologies, Inc., PCP has become a leading developer and manufacturer of highly engineered fasteners, fastener systems and precision components, primarily for critical aerospace and automotive applications. Approximately 73 percent of Fastener Products sales come from the same aerospace customer base already served by our Investment Cast Products and Forged Products segments. In this regard, Fastener Products is subject to many of the same market forces as these other two segments. The balance of the segment’s sales derives from automotive and general industrial markets, including farm machinery, construction equipment, machine tools, medical equipment, appliances and recreation.df

Business Growth

FY 2010 (ended March 28, 2010)[1]

  • Net sales declined 19% to $5.5 billion. Aerospace sales fell by 17%, power generation sales fell by 15%, and the sale to general industrial and other markets decreased 30%. The company attributes this to the general weakness in the industrial and power markets and lower average metal selling prices.
  • Net income fell 12% to $922 million.

Trends and Forces

Availability of raw material

PCP uses a number of raw materials in its products, including certain metals such as nickel, titanium, cobalt, tantalum and molybdenum, which are found in only a few parts of the world. These metals are required for the alloys used or manufactured in their investment casting, forged and fastener product segments. The availability and costs of these metals are influenced by private or governmental cartels, changes in world politics, unstable governments in exporting nations and inflation. Similarly, supplies of the tool-grade steel they use may also be subject to variations in availability and cost. For nickel and other metals, PCP has long-term contracts with customers that include escalation clauses that guarantee a change in the agreement price if a particular factor beyond control of either party significantly changes the value of the commodity. Shortages of and price increases for certain raw materials they use have can cause a reduction in production, and in turn a decrease in income. Increasing prices of raw material will also increase the price of their products, discouraging prospective buyers.[2]

Dependence on key customers

A substantial portion of PCP’s business is conducted with a relatively small number of large customers, including General Electric Company (GE), United Technologies Corporation and Rolls-Royce. General Electric accounted for approximately 14% of net sales in 2010. No other customer accounted for more than 10 percent of total sales; however, United Technologies and Rolls Royce are close to this percentage and are key customers. A financial hardship experienced by any one of these three customers, the loss of any of them, or a further reduction in or substantial delay of orders from any of them, would have a material adverse effect on PCP’s business. Due to the weak economy and lower demand for GE's products in 2010, the company bought fewer products from PCP -- as a result, PCP's sales to GE fell by 5%.[4]

Defense budget

Sales to the military sector constituted approximately 16% of 2010 sales.[5] PCP manufactures structural and airfoil castings for aeroderivative gas turbine engines which are used for military land and marine-based applications. Many of their products also go into the engines of military aircraft, and high utilization rates of the aircraft causes the need to replace parts or entire planes, creating more demand for new aircrafts increasing their sales. U.S. defense spending is subject to U.S. Congressional appropriations and to political pressures that influence which programs are funded and those which are cancelled. Reductions in defense budgets or military aircraft procurement or delays in funding will adversely affect PCP’s business.

Demand in the aerospace market

PCP’s commercial sales depend substantially on the production rates of both Boeing Company (BA) and Airbus , which in turn depend upon deliveries of new aircraft. The ultimate drivers of orders and deliveries of aircraft are underlying air travel demand, financial health of airlines, growth prospects for airline capacity, and overall economic growth. The current increase in aerospace demand is dependent on increased spending by foreign carriers and domestic airlines who must upgrade aging fleets. PCP stands to benefit from expected aircraft deliveries by Boeing and Airbus, and from the replacement cycle of aging turbines and aircraft that will be upgraded or overhauled. Any factor that adversely affects the aerospace industry (similar to the tragic events of 9/11 or the SARS travel scare) would likely pressure PCP’s operations and profitability. Bankruptcy of another airline, continued high oil prices, or the possibility of a major terrorist attack threaten to change the course of the recovery in the aerospace cycle and likely impact PCP.

Competition

PCP is the number one or two supplier in its principal markets. Because its castings use proprietary technologies and are critical to engine functionality, PCP’s customers are reluctant to seek out unproven suppliers. This conservatism shuts the door on potential new entrants; the firm's largest customer, GE, has bought Precision's castings for more than four decades. Given the limited number of competitors in each business and even fewer across the spectrum of services, PCP is less susceptible to pricing pressure than most of its peers.

Investment Cast Products segment

PCP’s principal competitor is Howmet, a subsidiary of Alcoa (AA). Howmet produces stainless steel, superalloy, aluminum and titanium investment castings principally for the aerospace and IGT markets. Howmet is capable of producing investment castings comparable to all but the largest and most complex of PCP’s structural investment castings. Howmet has the financial and technical resources to produce structural castings as large and complex as those produced by PCP, should they decide to do so. In addition, Pacific Cast Technologies (PCT), a subsidiary of Ladish Co. , manufactures large titanium investment castings for jet engine and airframe applications. Many other companies throughout the world also produce stainless steel, superalloy, aluminum or titanium investment castings, and some of these companies currently compete with PCP in the aerospace and other markets.

Forged Products segment

PCP’s largest competitors are Ladish Co. and Thyssen AG for aerospace turbine products, Alcoa Inc. and Schultz Steel Company for aerospace structural products, Vallourec Group and Sumitomo Corporation for energy products and Allegheny Technologies (ATI), Carpenter Technology Corporation, and Haynes International (HAYN) for nickel-based alloys and super-alloys.

Fastener Products segment

PCP Fastener operations compete with a large number of companies based primarily on technology, price, service, product quality and performance. Of these companies, Alcoa Inc. and Lisi SA are considered to be their leading competitors.

Notes

  1. 1.0 1.1 PCP 2010 10-K "Selected Financial Data" pg. 22
  2. 2.0 2.1 PCP 2010 10-K "Materials & Supplies" pg. 9-10
  3. PCP 2010 10-K "Products and Markets" pg. 1-6
  4. PCP 2010 10-K "Major Customers" pg. 8
  5. PCP 2010 10-K "Our business dependent on a small number of direct and indirect customers" pg. 13
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