Goodrich does not expect any slowdown in aftermarket sales
Goodrich remains confident of continued growth in its airline aftermarket business despite the recent surge in fuel prices, which could lead to a new series of airline capacity cuts.
The MRO firm and aircraft component supplier recorded a 12% increase in commercial aftermarket sales for 1Q2011 compared to 1Q2010 and a 9% increase compared to 4Q2010. Overall Goodrich's 1Q2011 revenues were also up 12% to USD1.896 billion as all major sections of its diverse business chalked up year-on-year increases, including a 6% increase in sales to large commercial aircraft manufacturers. The higher sales level resulted in an improvement in profitability as Goodrich recorded a 75% year-on-year increase in net profits to USD195 million as well as a 2.4 percentage point improvement in operating income margins to 17.7%.
Outlook solid
Goodrich expects the revenue and profitability improvements to track at the same levels for the remaining three quarters of 2011. Sales for the year are expected to grow 12%, generating USD7.8 billion, which is at the top end of Goodrich's prior forecast. Operating margins are expected to end the year in the 16.5% to 17% range.
Analysts during Goodrich's conference 1Q2011 earnings conference call repeatedly questioned executives if the recent spike in fuel prices and resulting impact on airline capacity could force a downward adjustment in its 2011 outlook, especially a 7% to 9% projected increase in commercial aftermarket sales. But Goodrich CEO Marshall Larsen assured analysts there will not be any impact from the increase in fuel prices, at least "at this point in time".
Larsen expects there could be some capacity cuts in the US airline market but even these would not likely impact 2011 revenues because there is typically a "lag effect of six months or more". He says other regions meanwhile continue to grow capacity and offset any potential capacity declines in North America.
"You've seen some of the airlines like Delta reduce their capacity increases that they were planning, but we've also seen offsets in Asia. ... So I'm not very concerned that we're not going to be able to hit our aftermarket forecast for the year," Larsen says. "Just take what we gained in the first quarter and project it through year-end, we'd be at the top end of that 7% to 9% range. So although we're watching the situation, we think we can still deliver that kind of growth."
He pointed out the aftermarket business is still in the process of recovering from the lows of 2009, when capacity cuts and parking of ageing aircraft due to the global economic downturn impacted revenues. Larsen said in 2010 the aftermarket business was "transitioning" and "I expect 2011 to be stronger, and I think we will start hitting the stride out there in the aftermarket with the airlines in 2012 and 2013. I just think we're still in that transition at this point in time."
Larsen cited the rapid recovery in the Asian market. "Asia has bounced back very nicely and we see that in our MRO shops. We've got much more activity going on there now than we did a year ago. So that was a significant difference, and I would say that's moved the most."
The backlog at Goodrich's MRO shops in Asia are now the highest in 10 months and Larsen says bookings from Asian major carriers remains strong. "We booked more majors at this time this year than we had last year year-to-date, so that's a good trend," he says.
Demand for aircraft interior parts is particularly strong. "We got orders in place to support sales through the next half of the year, which is very good in that business," Larsen says. He adds that sales of wheels and brakes are also strong and there has been a recovery in demand for part for commercial aircraft types which are out of production. "So as we look around the business, even our smaller businesses are seeing good prospects on the aftermarket."