Saturday, July 27, 2013

B/E Aerospace Quarter 2 Earnings Release

BE Aerospace reported another very positive quarter, exhibiting strong growth across all segments as the market for commercial airplanes continue to experience a cyclical shift upward led by the strength airlines are experiencing, coupled with an industry shift towards more fuel efficient planes as prices continue to increase.

BE Aerospace reported earnings per share of $.89 for the quarter beating analyst expectations of  $.85 a year over year increase of 29% on revenues of $850 million, an 11% increase over the prior year's quarter. Growth was driven by commercial aircraft demand, and a surprise bounce back in business jet revenues despite negative conditions surrounding that segment. The commercial aircraft segment grew 9.9% as deliveries the Boeing 787 increased to 7 per month, with a target of 10 per month by the end of the year. Deliveries of the 737 max and the 777 remained strong, and Airbus orders on the a380 and a320 remained strong (including a 75 plane order from Spirit Airlines for the a321 to begin shipping in 2016). Business jet orders was the biggest surprise for the quarter as revenues grew 19% over last year. A strong mix of revenues (including General Dynamics Gulfstream g650) contributed to the growth. Consumables management also grew almost 10% as a result on strong deliveries.

Earnings also grew near 30% for the quarter on a significant increase of margins as well. Operating margins expanded 80 bps in the quarter, well ahead of the 50 bps increase management expected.

Orders were strong yet again with book to bill of 1.04 on a number of awards including Bombardier, Boeing, and Airbus orders in the consumables management segment. Also, BE Aerospace was awarded its first lavatory award to be used on all new Boeing 737's and Airbus A320's, as well as a contract to upgrade all existing planes. As a result, moving forward BE Aerospace will be the sole provider for lavatory systems for virtually all commercial narrow body planes (excluding Bombardier).

Going forward the market continues to be very strong for commercial aircrafts, and BE Aerospace is expected to reap the rewards. Expectations are for a 10% CAGR in wide body commercial aircraft deliveries over the next 3 years, and a projected double digit revenue CAGR past 2015. Additionally, management raised guidance for 2013 to $3.50 in EPS, a $.05 raise, based on operating margins that are beating expectations, representing a 24% increase in EPS over 2012.

We remain positive in our outlook for BE Aerospace and the commercial aircraft market. After earnings, the stock rose approximately 2%, crossing our current price target. We are currently reevaluating the stock and expect an updated rating shortly.

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