B/E Aerospace Record Second Quarter 2014 Financial Results Exceed Expectations; Second Quarter Reven
23-Jul-2014 B/E Aerospace Record Second Quarter 2014 Financial Results Exceed Expectations; Second Quarter Revenues of $1.1 Billion up 28%; EPS of $1.13, Excluding Items, Up 27%
B/E Aerospace, Inc. (NASDAQ: BEAV), the world's leading manufacturer of aircraft cabin interior products and the world's leading provider of aerospace fasteners, consumables and logistics services, today announced its second quarter 2014 financial results. Except as otherwise noted, the second quarter 2014 and six month 2014 results and commentary in this release are adjusted to exclude acquisition and strategic review related costs aggregating $12.8 million in the second quarter 2014, and $15.0 million in the six month 2014 period, as described in "Reconciliation of Non-GAAP Measures."
SECOND QUARTER 2014 HIGHLIGHTS COMPARED WITH SECOND QUARTER 2013
Revenues increased 28 percent.
Operating earnings increased 25 percent.
Earnings before income taxes increased 30 percent.
Earnings per diluted share increased 27 percent.
SECOND QUARTER CONSOLIDATED RESULTS
Second quarter 2014 revenues of $1.09 billion increased 28.1 percent as compared with the prior year period.
Second quarter 2014 operating earnings were $198.1 million, an increase of 24.8 percent, and operating margin was 18.2 percent. On a GAAP basis, operating earnings were $185.3 million.
Second quarter 2014 earnings before income taxes were $166.4 million, an increase of 29.8 percent. On a GAAP basis, earnings before income taxes were $153.6 million.
Second quarter 2014 net earnings and earnings per diluted share were $117.6 million and $1.13 per share, representing increases of 27.3 percent and 27.0 percent, respectively, as compared with the prior year period. On a GAAP basis, net earnings and earnings per diluted share were $108.6 million and $1.04 per share.
Commenting on the Company's recent performance, Amin J. Khoury, Chairman and Chief Executive Officer of B/E Aerospace said, "I am pleased to report that our second quarter 2014 results were the best quarterly results in the Company's history. Our results included record quarterly revenues, operating earnings, net earnings and earnings per share."
"During the quarter, we announced plans to create two separate, independent, publicly traded, industry-leading companies; one focused on aircraft cabin interior equipment design, development, manufacturing, certification and direct sales on a global basis ("Manufacturing Co."); and the other focused on distribution, logistics and technical services for the aerospace and energy services markets ("Services Co."). Separating these highly successful businesses into two industry-leading independent companies will allow each to benefit from increased management focus and operational flexibility, as well as allow the management teams and boards of directors of each business to determine the optimal capital structure, free cash flow allocation policy, growth strategy, compensation system and performance measurement metrics. This decision reflects our ongoing commitment to address the distinct needs of each of our businesses and the Company's strategic priorities, all consistent with our focus on further optimizing shareholder value."
"The Company anticipates filing its Form 10 Registration Statement with the Securities and Exchange Commission in September of 2014, and subject to customary conditions, expects to be able to effect a distribution of the shares of Services Co. to B/E Aerospace shareholders by the end of the first quarter of 2015. Our team of advisors includes Citigroup, Goldman, Sachs & Co., J.P. Morgan Securities LLC, and Shearman & Sterling LLP."
SECOND QUARTER SEGMENT RESULTS
Second quarter 2014 commercial aircraft segment (CAS) revenues increased 25.5 percent while operating earnings of $99.2 million increased 24.5 percent as compared with the prior year period and operating margin was 18.3 percent.
Second quarter 2014 consumables management segment (CMS) revenues increased 36.5 percent. The consumables distribution business delivered high single-digit organic revenue growth. On a pro-forma basis as though all acquisitions had been completed on January 1, 2013, CMS revenue growth was 12.0 percent. Operating earnings were $78.3 million, an increase of 27.7 percent, and operating margin was 18.4 percent.
Second quarter 2014 business jet segment (BJS) revenues increased 14.4 percent. Operating earnings were $20.6 million, an increase of 16.4 percent. Operating margin of 16.9 percent expanded by 30 basis points as compared with the prior year period.
SIX MONTH CONSOLIDATED RESULTS
For the six months ended June 30, 2014, revenues of $2.1 billion increased 24.1 percent as compared with the prior year period.
For the six months ended June 30, 2014, operating earnings were $383.3 million, an increase of 22.7 percent. Operating margin was 18.2 percent. On a GAAP basis, operating earnings were $368.3 million.
For the six months ended June 30, 2014, net earnings and earnings per diluted share were $228.3 million and $2.19 per share, representing increases of 25.2 percent and 24.4 percent, respectively, as compared with the prior year period. On a GAAP basis, net earnings and earnings per diluted share were $217.6 million and $2.08 per share, representing increases of 19.4 percent and 18.2 percent, respectively.
SIX MONTH SEGMENT RESULTS
For the six months ended June 30, 2014, CAS revenues increased 25.1 percent while operating earnings of $192.3 million increased 25.0 percent and operating margin of 18.1 percent was flat as compared with prior year period.
For the six months ended June 30, 2014, CMS revenues increased 24.1 percent. On a pro-forma basis as though all acquisitions had been completed on January 1, 2013, revenue growth was 8.3 percent. Operating earnings were $149.3 million, an increase of 18.4 percent, and operating margin was 18.8 percent.
For the six months ended June 30, 2014, BJS revenues increased 20.3 percent. Operating earnings and operating margin were $41.7 million and 17.2 percent and increased 29.1 percent and 120 basis points, respectively.
RECENT ACQUISITION ACTIVITY
During the quarter, the Company completed the previously announced acquisitions of EMTEQ, Fischer + Entwicklungen, and a small bolt-on transaction for an aggregate purchase price of approximately $539 million in cash, and which are reported as part of the business jet segment. Also during the quarter, the Company completed the earlier announced Vision Oil Tools transaction and two additional bolt-on transactions for an aggregate purchase price of approximately $256 million in cash, and which are reported as part of the consumables management segment. The Company does not anticipate any further acquisition activity during the remainder of 2014.
CASH FLOW, LIQUIDITY AND BALANCE SHEET
Cash flow from operations in the second quarter of 2014 of $11.4 million reflected a 28.1 percent increase in revenues and a corresponding 17.3 percent increase in working capital as compared with the prior year period, exclusive of cash and the impact of acquisitions. Capital expenditures to support recent acquisitions as well as long-term customer programs were $66.5 million. During the second quarter of 2014 the Company paid approximately $795 million for the aforementioned recently completed acquisitions. The Company expects substantially stronger free cash flow in the second half of 2014 and now expects a full year 2014 free cash flow conversion ratio of approximately 60 percent of net earnings reflecting a higher level of capital expenditures to support capital expenditure requirements of the acquired businesses.
As of June 30, 2014, cash was $216.5 million, net debt, which represents total long-term debt of $2.6 billion less cash, was $2.4 billion, and the Company's net debt-to-net capital ratio was 45.7 percent. During the quarter the Company increased its revolving credit facility by $450 million to $1.4 billion of which approximately $668 million was drawn.
BOOKINGS/BACKLOG
Bookings during the second quarter of 2014 were approximately $1.06 billion, an increase of approximately 20 percent as compared with the prior year period. Bookings for the first six months of 2014 increased 29 percent as compared to the prior year period. During the first six months of 2014, aircraft cabin interior products awards increased approximately 175 percent as compared with the prior year period, and were a record for any six month period. Backlog as of June 30, 2014 was approximately $3.9 billion, while awarded but unbooked backlog was approximately $5.0 billion, bringing total backlog, both booked and awarded but unbooked, to approximately $8.9 billion.
OUTLOOK
Commenting on the Company's outlook, Mr. Khoury concluded, "Our total backlog, both booked and awarded but unbooked, of approximately $8.9 billion, our expectation for robust wide-body aircraft deliveries, our expectation of strong revenue growth from our SFE program deliveries, and the expectation for continued growth in global passenger travel, all provide a basis for our expectation of continued strong revenue growth."
The Company's 2014 financial guidance is as follows:
The Company expects continued strong bookings in 2014 driven by the Company's record backlog, the robust wide-body aircraft delivery outlook, bookings from prior SFE awarded programs, and a continuing improvement in aftermarket demand.
2014 revenues are expected to be approximately $4.3 billion.
The Company raised guidance on March 31, 2014 and again on June 10, 2014, and now expects 2014 earnings per share of approximately $4.35 per diluted share, exclusive of 2014 acquisition and strategic review related costs, representing an increase of approximately 23 percent as compared to 2013 earnings per diluted share, similarly adjusted to exclude 2013 acquisition expenses.
2014 free cash flow conversion ratio is expected to be approximately 60 percent of net earnings reflecting a higher level of capital expenditures to support capital expenditure requirements of the acquired businesses.
Net earnings, diluted net earnings per common share, earnings before income tax, operating earnings, operating margin, CAS operating earnings, CAS operating margin, CMS operating earnings, CMS operating margin, BJS operating earnings, BJS operating margin in each case excluding acquisition and strategic review related costs, free cash flow, and free cash flow conversion ratio are presented in this press release and are non-GAAP financial measures. For more information see "Reconciliation of Non-GAAP Financial Measures."