Though it has expertise in casting, you won't find Precision Castparts Corp. (PCC) offering Hollywood stars any movie roles. The company is a maker of investment castings used in jet aircraft, satellite launches, aerostructures, armaments, and medical applications (prostheses). Its Investment Cast products segment makes jet engine parts, fluid management valves, and deep-hole boring tools. Forged Products and Airframe Products round out PCC's three segments and cover the power generation and paper and pulp industries, as well as general industry. The aerospace sector accounts for 70% of PCC's sales. In January 2016 the company was acquired by Berkshire Hathaway in a mega-deal valued at $37 billion.
PCC manufactures extruded seamless pipe, fittings, forgings, and clad products for power generation and oil and gas applications; commercial and military airframe aerostructures; and metal alloys and other materials to the casting, forging, and other industries.
PCC's Forged Products segment works with such metals as titanium and steel alloys to manufacture components for commercial and military aircraft. Generating 43% of the company's sales, the lineup ranges from landing gear to wing structures and airframes, as well as piping for the energy market.
The Airframe Products segment (32% of sales) primarily produces highly engineered fasteners, fastener systems, fluid fittings, aerostructures, and precision components for critical applications in the aerospace, automotive and industrial machinery markets. The majority of Airframe Products sales come from the same aerospace customer base served by the Investment Cast Products and Forged Products segments. The unit also manufactures parts used in the pulp and paper and power generation markets.
The Investment Cast Products division (25% of sales) works with specialty materials and alloys, nickel- and cobalt-base alloys and stainless steel, to create large structural castings for such applications as aircraft engines, gas turbines, airfoils, and airframes. Other products from this segment include medical prostheses, artificial hips and knees, and components for pumps and compressors, as well as large titanium components for armament systems such as the BAE lightweight howitzer.
PCC operates 155 manufacturing plants across North America, South Americas, Europe, Asia and Australia. In fiscal 2015 (March year end) the company generated 82% of its revenues from its US operations.
Sales and Marketing
PCC serves the aerospace, power, and general industrial markets. The company offers its products for coal-fired, industrial gas turbine (IGT) and nuclear power plants; oil and gas environment; general industrial, armament, medical and other applications; aerospace, chemical processing, oil and gas, pollution control; automotive and general industrial markets, and investment casting and forging industries.
The company sells its products through direct sales personnel, along with field sales representatives as well as through a worldwide network of distributors. Aerostructures' products and services are sold through a direct sales staff.
Sales to the aerospace market increased from 65% of PCC's revenues in 2013 to 69% 2014, and 70% in fiscal 2015. Sales to the power market accounted for 17% of PPC's fiscal 2015 revenues.
The company’s customers included General Electric, United Technologies, Rolls Royce, Airbus, Spirit AeroSystems, Kennametal, Siemens, and Boeing. Direct sales to General Electric accounted for 13% of PCC's revenues in fiscal 2015.
PCC has gained considerable financial ground since the recession. In fiscal 2015 its revenue increased by 4%, due to full year results of seven acquisitions made in fiscal 2014, along with increases in metal pricing and organic sales growth. The highest change was from its Airframe Products segment (contributing 32%), which experienced 11% growth resulting from the acquisition of Permaswage along with three other small acquisitions; the segment also experienced strong growth in aerospace sales. Investment Cast Products and Forged Products sales rose by 3% and 2% respectively, as a result of organic growth (and acquisitions in the Forged Products segment).
In fiscal 2015 the company's net income decreased by 14% due to higher selling and administrative expenses, restructuring expense, loss from discontinued operations suffered in fiscal 2015 and equity loss from unconsolidated affiliates. These negative pressures were partially offset by lower interest income and income tax expenses, and higher revenues.
PCC’s reported a 10% decline operating cash flow in fiscal 2015, due to a decrease in net income; outflows in receivables and income tax receivable and payable; a drop in cash inflows by prepaid expenses; pension and other postretirement benefit plans; and the absence of payables and accruals.
The company is focused on acquisitions to develop its businesses, expand internationally, provide low-cost manufacturing, and fund investment in technologies to add products and services.
It also sells non-core assets to pay down debt.
In the fourth quarter of fiscal 2015, the company decided to sell its 50% ownership of Yangzhou Chengde Steel Tube Co. Ltd., a large-diameter pipe manufacturing joint venture in China.That year PCC also divested two small businesses in the Forged Products segment; In fiscal 2014 it also sold two small non-core businesses.
Mergers and Acquisitions
PCC is using acquisitions as a means to bolster sales. During the first quarter of fiscal 2016 the company completed two small acquisitions for the Forged Products segment. In fiscal 2015 it completed one small acquisition under the Airframe Products segment; in fiscal 2014 it completed 6 small company acquisitions (3 for Forged Products segment and 3 for Airframe Products segment);
To expand its Aerostructures portfolio, in fiscal 2014 the company acquired Aerospace Dynamics International (ADI), a premier supplier, operating a wide range of high-speed machining centers, for 625 million.
In fiscal 2013 PCC acquired France-based Permaswage, a maker of aerospace fluid fittings, for $600 million. The deal fortifies PCC's product range of airplane components.
The company is also using acquisitions to jumpstart its Forged Products segment. In fiscal 2013 it also purchased TIMET, a fabricated titanium products provider, for $2.9 billion. PCC bought TIMET to streamline its supply chain and optimize its input costs by adding fabricated titanium products to its portfolio.