Spirit AeroSystems Reports Solid Q1 2019 Results
- Revenue of $2.0 billion, up 13% y/y
- Earnings per share (EPS) of $1.55, up 41% y/y; Adjusted EPS* of $1.68, up 53% y/y
- Cash from operations of $242 million, up 45% y/y; Adjusted free cash flow* of $209 million, up 77% y/y
- Received conditional clearance from the European Commission for the acquisition of Asco, expect to close in Q2 after meeting required implementation conditions
- Announced MOA with Boeing to maintain 737 production rate at 52 shipsets per month
- Prior 2019 guidance does not reflect the 737 MAX production schedule changes, new guidance to be issued at a later date
WICHITA, Kan., May 1, 2019 /PRNewswire/ -- Spirit AeroSystems Holdings, Inc. [NYSE: SPR] reported first quarter 2019 financial results.
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Table 1. Summary Financial Results (unaudited) |
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1st Quarter |
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($ in millions, except per share data) |
2019 |
2018 |
Change |
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Revenues |
$1,968 |
$1,736 |
13% |
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Operating Income |
$233 |
$160 |
46% |
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Operating Income as a % of Revenues |
11.8% |
9.2% |
260 BPS |
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Net Income |
$163 |
$125 |
30% |
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Net Income as a % of Revenues |
8.3% |
7.2% |
110 BPS |
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Earnings Per Share (Fully Diluted) |
$1.55 |
$1.10 |
41% |
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Adjusted Earnings Per Share (Fully Diluted)* |
$1.68 |
$1.10 |
53% |
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Fully Diluted Weighted Avg Share Count |
105.3 |
114.1 |
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737 Program
On April 5, 2019, Spirit announced it will maintain its current delivery rate on the Boeing 737 program of 52 shipsets per month following Boeing's announcement that it will reduce its own production rate to 42 aircraft per month. On April 12, 2019, Boeing and Spirit executed a Memorandum of Agreement which established that all Boeing 737 shipsets produced above Boeing's production rate (collectively, the "incremental shipsets") will be deemed to be delivered to Boeing "FOB" at Spirit's facilities, which will trigger Boeing's payment obligations for the incremental shipsets. Spirit will maintain these shipsets at Spirit's facilities. Spirit will also receive certain advance payments from Boeing for material purchases, all of which are repayable.
"Previously, we had planned to increase production to 57 aircraft per month on the Boeing 737 program beginning in approximately June 2019. Now, we will be maintaining production at our current rate of 52 aircraft per month. With this schedule, we will produce fewer 737 MAX aircraft this year than we previously forecasted, by five units per month beginning in June, for as long as we remain at a production rate of 52 aircraft per month," said Tom Gentile, Spirit's President and Chief Executive Officer. "Given the reduction in production units and corresponding revenue, we have begun taking immediate actions to reduce expenses, defer capital investments, and redouble our efforts on working capital improvements to mitigate the financial impact of the production rate change. After spending $75 million in the first quarter on share repurchases, we will pause our share repurchases pending further clarity surrounding the 737 MAX."
"Our prior guidance for 2019 assumed we would increase 737 monthly production in June 2019 to 57 aircraft. As we now expect to remain at 52 aircraft per month for some period of time, that guidance does not reflect our current outlook," said Gentile. "Due to the uncertainties, we will issue updated guidance for 2019 when we receive more definitive information on the timing of the 737 MAX return to service and Boeing's new production schedule."
Revenue
Spirit's first quarter 2019 revenue was $2.0 billion, up from the same period of 2018. This increase was primarily driven by higher production volumes on the Boeing 737 and 787 programs, favorable model mix on the Boeing 737 program and higher revenue recognized on the Boeing 787 program, partially offset by lower non-recurring activity on certain Boeing programs. (Table 1)
Spirit's backlog at the end of the first quarter of 2019 was approximately $48 billion, with work packages on all commercial platforms in the Boeing and Airbus backlog.
Earnings
Operating income for the first quarter of 2019 was $233 million, up compared to $160 million in the same period of 2018. This increase was primarily due to higher production volume and model mix on the Boeing 737 program, the absence of forward losses recognized on the Boeing 787 program during the first quarter of 2018 and higher margin recognized on the Airbus A350 program. First quarter EPS was $1.55, up compared to $1.10 in the same period of 2018. First quarter adjusted EPS* was $1.68, excluding the impact of the planned Asco acquisition. (Table 1)
Cash
Cash from operations in the first quarter of 2019 was $242 million, up compared to $167 million in the same quarter last year, primarily due to higher receipts from customers and lower incentive compensation payments. Adjusted free cash flow* in the first quarter of 2019 was $209 million, compared to $118 million in the same period of 2018. Cash balance at the end of the quarter was $1.2 billion, which provides the funds necessary to complete the acquisition of Asco. (Table 2)
During the first quarter, Spirit repurchased 0.8 million shares for $75 million. There was $925 million remaining under the current share repurchase authorization at the end of the first quarter.
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Table 2. Cash Flow and Liquidity (unaudited) |
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1st Quarter |
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($ in millions) |
2019 |
2018 |
Change |
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Cash from Operations |
$242 |
$167 |
45% |
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Purchases of Property, Plant & Equipment |
($41) |
($48) |
(15%) |
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Free Cash Flow* |
$201 |
$118 |
70% |
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Adjusted Free Cash Flow* |
$209 |
$118 |
77% |
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March 28, |
December 31, |
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Liquidity |
2019 |
2018 |
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Cash |
$1,228 |
$774 |
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Total Debt |
$2,247 |
$1,895 |
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Segment Results
Fuselage Systems
Fuselage Systems segment revenue in the first quarter of 2019 increased by 11 percent from the same period last year to $1.1 billion. This increase was primarily due to higher production volumes on the Boeing 737 and 787 programs in addition to higher revenue recognized on the Boeing 787 program. Operating margin for the first quarter of 2019 increased to 13.0 percent, compared to 12.4 percent during the same period of 2018, primarily due to the absence of forward losses on the Boeing 787 program recognized during the first quarter of 2018. In the first quarter of 2019, the segment recorded pretax $(1.2) million of unfavorable cumulative catch-up adjustments and $3.7 million of favorable changes in estimates on forward loss programs.
Propulsion Systems
Propulsion Systems segment revenue in the first quarter of 2019 increased 23 percent from the same period last year to $486 million, primarily driven by higher production volume and model mix on the Boeing 737 program and higher revenue recognized on the Boeing 787 program. Operating margin for the first quarter of 2019 increased to 19.7 percent, compared to 13.4 percent during the same period of 2018, primarily due to model mix on the Boeing 737 program. In the first quarter of 2019, the segment recorded pretax $(2.8) million of unfavorable cumulative catch-up adjustments and $0.5 million of favorable changes in estimates on forward loss programs.
Wing Systems
Wing Systems segment revenue in the first quarter of 2019 increased eight percent from the same period last year to $408 million, primarily due to higher production volume on the Boeing 737, 777 and 787 programs as well as higher wing deliveries on the Airbus A350 program. Operating margin for the first quarter of 2019 increased to 16.1 percent, compared to 13.5 percent during the same period of 2018, primarily driven by performance on the Airbus A350 program. In the first quarter of 2019, the segment recorded pretax $(0.2) million of unfavorable cumulative catch-up adjustments and $0.5 million of favorable changes in estimates on forward loss programs.
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Table 4. Segment Reporting (unaudited) |
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1st Quarter |
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($ in millions) |
2019 |
2018 |
Change |
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Segment Revenues |
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Fuselage Systems |
$1,069.6 |
$962.7 |
11.1% |
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Propulsion Systems |
485.7 |
394.5 |
23.1% |
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Wing Systems |
407.9 |
377.0 |
8.2% |
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All Other |
4.6 |
1.9 |
** |
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Total Segment Revenues |
$1,967.8 |
$1,736.1 |
13.3% |
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Segment Earnings from Operations |
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Fuselage Systems |
$138.9 |
$119.7 |
16.0% |
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Propulsion Systems |
95.5 |
52.9 |
80.5% |
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Wing Systems |
65.8 |
50.8 |
29.5% |
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All Other |
1.2 |
(1.0) |
** |
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Total Segment Operating Earnings |
$301.4 |
$222.4 |
35.5% |
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Unallocated Expense |
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SG&A |
($63.6) |
($56.2) |
(13.2%) |
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Research & Development |
(12.9) |
(9.4) |
(37.2%) |
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Cost of Sales |
8.1 |
2.7 |
** |
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Total Earnings from Operations |
$233.0 |
$159.5 |
46.1% |
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Segment Operating Earnings as % of Revenues |
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Fuselage Systems |
13. | ||