Precision Castparts Earnings Call Insights: Forged Margins and IGT Upgrades

Precision Castparts Corp. (NYSE:PCP) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Forged Margins

Noah Popanak – Goldman, Sachs & Co.: Wanted to just ask if you could maybe talk about the Forged margins and how you expect them to progress over the next few quarters? It was definitely higher than I would have expected in the fourth quarter. I don’t know if you are willing to quantify what legacy PCP did versus what Timet did and then on a go forward basis here you have more Timet improvement, more base business incremental improvement but then you have the 29K-press situation still lingering which is kind of hard for us to model. So help us understand how that trend is going forward?

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Mark Donegan – Chairman and CEO: Yes. Let me start from the backward standpoint. So if I look at the 29K, obviously the biggest impact came in Q2. We kind of put a range around that of about $8 million to $10 million kind of going back to my (brain) a little bit. But that’s kind of the range we gave. We came down the curve a little – to some degree in Q3, we are continuing to come down the curve in Q4. So I think that in total are we going to get the type of 200 basis points every single quarter, no we are not. But is there a long runway of improvement, have a controlled manner and growing those margins, yes, I think there is. Now if I look at Q2, we are going to bring the press back now. We will have some expense with it, but we will have sales going through probably not at the rates that we would in Q – surrounding it in Q1 and Q3, but – so what I would say is, certainly movement going forward in a controlled manner, Q2 kind of getting that outage in. But again to that we will have Timet being laid over the top of that with improvement and then you kind of move your way through with a clean 29 in Q3 and Q4 again with kind of Timet in there. But I would – I’d be careful a little bit, because I hate giving an exact number, but we would expect to continue to drive 50 basis points or something like that as over a period of time, as a reasonable type of sequentials type of number over time. Now there may be some ups and down for that, which you typically see, but over directionally, I think that’s not a bad way to think about it.

Noah Popanak – Goldman, Sachs & Co.: So it sounds like you feel like you have set a new baseline here. You wouldn’t expect it to go down in the next couple of quarters. So it’s up modestly, first half and then you move back to your regular incrementals in the back half of the year?

Mark Donegan – Chairman and CEO: Yes. I think that’s probably a reasonable way to think about.

IGT Upgrades

Jason Gursky – Citi: I just had a question around timing on two issues; first on 787 and when you think you will be at a rate of 10 aircraft a month internally at Precision Castparts? The second was on timing around the IGT upgrades that you talked about, earlier in your presentation, if you could provide just a little bit more detail on the size and scope and the timing of the upgrades?

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Mark Donegan – Chairman and CEO: Sure. So, if I look at the 787, there seems to be kind of a window based on inventory levels, but I would say that certainly as we go from Q4, our fiscal Q4, somewhere in there, I would expect to be at that rate of 10. I know that the commitment from Boeing is to get there and I think we will continue to move that way, but again, there is a balancing of the inventory they have on hand, and how that rolls through to us, but I think that, by the time, we would kind of get into that, Q4 would be at those type of rates. If I think of the question and timing on the upgrades, we’re just now getting cut into the tooling, so you’re probably looking at again, very, very back half of the year and probably moving into next year, when we’ll see kind of, by the time we get tooling cut, get it in and then start getting the development through and then start producing required sets, that’s probably about the (yearly). It’s usually a nine to 12 month time from when you get kicked off to when you start delivering.

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