July 29, 2015: Spirit Aerosystems, whose principal business is a major OEM supplier to Boeing but which also makes fuselage panels for the Airbus A350, reported lower revenues but higher profits for the FY2Q2015.
The press release is here.
Revenues were down because the company sold its Gulfstream wing sector and lower revenues were recognized from the Boeing 787 program.
“Preparing for aircraft rate increases is a key focus for us this year. Near term, we are capitalizing to increase the production rate of the 787 to 12 shipsets per month and the 737 to 47 shipsets per month, as well as the higher production rates on the A320 and A350 programs,” said Larry Lawson, CEO.
Wells Fargo has this initial reaction:
SPR reported Q2 EPS of $1.11 – well ahead of our $0.99 and consensus $0.97 due to mostly to: (1) better-than-expected segment operating margin (18.1% vs. our 16.1% estimate, +$0.18 vs. our estimate), and (2) lower interest expense (+$0.02) offset by a weaker-than-expected topline (-$0.05). Earnings also included a partial release of the deferred tax valuation allowance of $0.02. Excluding this impact, adjusted EPS was $1.09, still above our and consensus estimates helped by $20M in net favorable cumulative adjustments.
Free cash flow of $230M was comfortably ahead of our $95M estimate, driven by an increase in deferred revenue payments and timing of accounts payable, offset by higher cash taxes, capital spending, and increased cash advance payments. Free cash flow guidance was increased by $100-$200MM for 2015.
Spirit reaffirmed its 2015 guidance of $3.60-$3.80 EPS on sales of $6.6-6.7B. However, free cash flow was raised to $700-800 from $600-700M excluding the 787 Interim Pricing portion of Deferred Revenue. The EPS guidance assumes an effective tax rate of 32-33%, which includes the expected R&D tax credit extension, but does not include any benefit from the deferred tax valuation allowance.
Spirit delivered a record 34 787 shipsets during the quarter and nine A350 shipsets. Preparing for production rate increases for the 737, 787, and Airbus A320 and A350.
The A350 deferred production continues to increase, with 42 shipsets delivered so far, but the rate per shipset has declined dramatically. The challenge on the A350-1000 was the first time through the line.
There is a smooth transition on the variants of the 787. The 737 MAX: “Our deliverables are delivering,” said Lawson.