SPIRIT AEROSYSTEMS HOLDINGS, INC. WICHITA, Kan., Nov. 1, 2016 /PRNewswire/ --
Third Quarter 2016 Results and Highlights
-- Strong performance:
-- Revenue of $1.7 billion, up 7% y/y
-- Earnings per share (EPS) of $1.16
-- Free cash flow* of $214 million
-- Purchased 7.4 million shares for $332 million, completed existing share
repurchase program
-- Announces new share repurchase program of up to $600 million
-- Initiates quarterly dividend of $0.10 per share
-- Raises full-year 2016 guidance:
-- Revenue increased $100 million to $6.7 - $6.8 billion
-- EPS increased from $3.45 - $3.65 to $3.65 - $3.80 (Adjusted EPS* of
$4.50 - $4.65)
-- Free cash flow* increased from $350 - $400 million to $400 - $425
million
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Spirit AeroSystems Holdings, Inc., [NYSE: SPR] reported third quarter 2016 financial results driven by strong operating performance of mature programs. During the quarter, Spirit purchased 7.4 million shares for $332 million, which concludes the current $600 million share repurchase program.
"As promised, we remain committed to a balanced and disciplined approach to capital deployment by utilizing all the different mechanisms in an opportunistic and timely way. Our strong performance this year and our five-year financial outlook give us a high degree of confidence in our business. After discussions with our Board about capital allocation, we are pleased to announce a new share repurchase program of $600 million and initiate a quarterly dividend of $0.10 per share," Spirit President and CEO Tom Gentile said.
The dividend is payable on January 9, 2017 to shareholders of record as of December 19, 2016.
In the quarter, Spirit celebrated the successful delivery of key components to Boeing for the 500th 787 Dreamliner. This represents a monumental accomplishment for Spirit, which has been delivering a fully integrated forward fuselage, engine pylons, and fixed and moveable leading edges to Boeing since 2007.
"We are extremely proud of our collaboration with Boeing and the work we do together to build the 787, the fastest twin-aisle airplane to reach this key milestone," Gentile added.
Table 1. Summary Financial Results (unaudited)
----------------------------------------------
3rd Quarter Nine Months
----------- -----------
($ in millions, except per share data) 2016 2015 Change 2016 2015 Change
------------------------------------- ---- ---- ------ ---- ---- ------
Revenue $1,711 $1,594 7% $5,223 $5,035 4%
Operating Income $214 $192 11% $564 $657 (14%)
Operating Income as a % of Revenue 12.5% 12.0% 50 BPS 10.8% 13.1% (230) BPS
Net Income $145 $314 (54%) $362 $650 (44%)
Net Income as a % of Revenue 8.5% 19.7% (1,120) BPS 6.9% 12.9% (600) BPS
Earnings Per Share (Fully Diluted) $1.16 $2.24 (48%) $2.80 $4.64 (40%)
Adjusted Earnings Per Share (Fully Diluted)* $1.16 $0.89 30% $3.66 $2.97 23%
Fully Diluted Weighted Avg Share Count 125.3 140.2 129.0 140.1
Revenue
Spirit's third quarter 2016 revenue was $1.7 billion, up seven percent compared to the same period of 2015, primarily driven by higher production deliveries on the A350 XWB and Boeing 767 programs and higher revenue recognized on certain non-recurring Boeing programs, offset by lower production deliveries on the Boeing 747 program. (Table 1)
"We are increasing our revenue guidance by $100 million to a new range of $6.7 - $6.8 billion," Gentile stated.
Spirit's backlog at the end of the third quarter of 2016 was approximately $46 billion, with work packages on all commercial platforms in the Boeing and Airbus backlog.
Earnings
Operating income for the third quarter of 2016 was $214 million, compared to $192 million in the third quarter of 2015, reflecting higher production deliveries. Reported EPS was $1.16, compared to $2.24 EPS (or $0.89 adjusted EPS* excluding the impact of Deferred Tax Asset Valuation Allowance) in the same period of 2015. On an adjusted* basis EPS is up 30 percent year over year. (Table 1)
"We are increasing our earnings per share guidance to $3.65 - $3.80, which reflects $0.86 per share impact of one-time items which occurred in the second quarter. This equates to an adjusted earnings per share* guidance of $4.50 - $4.65," Gentile commented.
Cash
Free cash flow* in the third quarter of 2016 was $214 million, compared to free cash flow* of $139 million (or adjusted free cash flow* of $76 million, reflecting the impact of the 787 interim pricing agreement in the same quarter last year). On an adjusted basis, free cash flow* is up 182 percent year over year. (Table 2)
"Our free cash flow* guidance is also increasing to a new range of $400 - $425 million," Gentile concluded.
Cash balance at the end of the quarter was $670 million, reflecting the purchase of 7.4 million shares for $332 million during the quarter. The company's $650 million revolving credit facility remained undrawn at the end of the quarter.
Table 2. Cash Flow and Liquidity (unaudited)
3rd Quarter Nine Months
----------- -----------
($ in millions) 2016 2015 2016 2015
-------------- ---- ---- ---- ----
Cash Flow from Operations $266 $240 $574 $969
Purchases of Property, Plant & Equipment ($52) ($101) ($157) ($216)
Free Cash Flow* $214 $139 $417 $753
Adjusted Free Cash Flow* $214 $76 $374 $607
September 29, December 31,
Liquidity 2016 2015
---- ----
Cash $670 $957
Total Debt $1,105 $1,120
Financial Outlook and Risk to Future Financial Results
2016 Guidance
Table 3. Financial Outlook Updated November 1, 2016 Prior New
---------------------------------------------------- ----- ---
Revenue $6.6 - $6.7 billion $6.7 - $6.8 billion
Earnings Per Share (Fully Diluted) $3.45 - $3.65 $3.65 - $3.80
Effective Tax Rate ~31% ~31%
Free Cash Flow* $350 - $400 million $400 - $425 million
Risks to our financial guidance are described more fully in the Cautionary Statement Regarding Forward-Looking Statements in this release and in the "Risk Factors" section of our filings with the Securities and Exchange Commission.
Segment Results
Fuselage Systems
Fuselage Systems segment revenue in the third quarter of 2016 was up seven percent over the same period last year to $880 million, due to higher production deliveries on the A350 XWB and Boeing 767 programs, partially offset by lower production deliveries on the Boeing 737 and 747 programs. Operating margin for the third quarter of 2016 was 16.2 percent as compared to 15.9 percent during the same period of 2015. In the third quarter of 2016, the company recorded pretax ($1.9) million unfavorable cumulative catch-up adjustments on mature programs and a forward-loss of ($1.6) million.
Propulsion Systems
Propulsion Systems segment revenue in the third quarter of 2016 increased five percent over the same period last year to $453 million, driven by higher revenue recognized on certain non-recurring Boeing programs, and higher production deliveries on the Boeing 767 program and the Rolls-Royce BR725 program, partially offset by lower production deliveries on the Boeing 747 program. Operating margin for the third quarter of 2016 was 17.1 percent as compared to 22.1 percent during the same period of 2015. Year over year change is driven by significant cumulative catch-up adjustments in 2015, ongoing implementation of supply chain initiatives and higher revenue recognized on certain lower margin non-recurring Boeing programs in 2016. In the third quarter of 2016, the segment realized pretax ($1.6) million unfavorable cumulative catch-up adjustments on mature programs and a ($0.5) million forward-loss.
Wing Systems
Wing Systems segment revenue in the third quarter of 2016 increased ten percent over the same period last year to $377 million, primarily due to higher production deliveries on the A350 XWB and Boeing 737 programs, partially offset by lower wing-related activity on the Boeing 777 program and lower production deliveries on the Boeing 747 program. Operating margin for the third quarter of 2016 was 13.6 percent as compared to 13.4 percent during the same period of 2015. In the third quarter of 2016, the segment recorded pretax ($0.8) million unfavorable cumulative catch-up adjustments and a net favorable change in estimates on forward-loss programs of $0.9 million.
Table 4. Segment Reporting (unaudited)
3rd Quarter Nine Months
----------- -----------
($ in millions) 2016 2015 Change 2016 2015 Change
-------------- ---- ---- ------ ---- ---- ------
Segment Revenue
Fuselage Systems $880.3 $819.8 7.4% $2,679.7 $2,624.2 2.1%
Propulsion Systems 453.0 429.5 5.5% 1,373.3 1,316.0 4.4%
Wing Systems 376.8 341.2 10.4% 1,161.5 1,085.4 7.0%
All Other 1.3 3.1 8.4 8.9
--- --- --- ---
Total Segment Revenue $1,711.4 $1,593.6 7.4% $5,222.9 $5,034.5 3.7%
Segment Earnings from Operations
Fuselage Systems $142.5 $130.7 9.0% $340.9 $463.2 (26.4%)
Propulsion Systems 77.5 95.1 (18.5%) 250.9 279.0 (10.1%)
Wing Systems 51.1 45.6 12.1% 174.7 140.9 24.0%
All Other 0.6 0.2 2.0 1.3
--- --- --- ---
Total Segment Operating Earnings $271.7 $271.6 - $768.5 $884.4 (13.1%)
Unallocated Expense
Corporate SG&A ($52.2) ($54.5) 4.2% ($172.4) ($159.9) (7.8%)
Research & Development (5.4) (6.5) 16.9% (15.9) (20.2) 21.3%
Cost of Sales 0.3 (19.0) 101.6% (16.0) (47.1) 66.0%
Total Earnings from Operations $214.4 $191.6 11.9% $564.2 $657.2 (14.2%)
Segment Operating Earnings as % of Revenue
Fuselage Systems 16.2% 15.9% 30 BPS 12.7% 17.7% (500) BPS
Propulsion Systems 17.1% 22.1% (500) BPS 18.3% 21.2% (290) BPS
Wing Systems 13.6% 13.4% 20 BPS 15.0% 13.0% 200 BPS
All Other 46.2% 6.5% 23.8% 14.6%
---- --- ---- ----
Total Segment Operating Earnings as % of Revenue 15.9% 17.0% (110) BPS 14.7% 17.6% (290) BPS
Total Operating Earnings as % of Revenue 12.5% 12.0% 50 BPS 10.8% 13.1% (230) BPS
Cautionary Statement Regarding Forward-Looking Statements
This press release contains "forward-looking statements" that may involve many risks and uncertainties. Forward-looking statements reflect our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "anticipate," "believe," "continue," "estimate," "expect," "forecast," "intend," "may," "plan," "project," "should," "will," and other similar words, or phrases, or the negative thereof, unless the context requires otherwise. These statements reflect management's current views with respect to future events and are subject to risks and uncertainties, both known and unknown. Our actual results may vary materially from those anticipated in forward-looking statements. We caution investors not to place undue reliance on any forward-looking statements. Important factors that could cause actual results to differ materially from those reflected in such forward-looking statements and that should be considered in evaluating our outlook include, but are not limited to, the following: 1) our ability to continue to grow our business and execute our growth strategy, including the timing, execution, and profitability of new and maturing programs; 2) our ability to perform our obligations and manage costs related to our new and maturing commercial, business aircraft and military development programs and the related recurring production; 3) margin pressures and the potential for additional forward losses on new and maturing programs; 4) our ability to accommodate, and the cost of accommodating, announced increases in the build rates of certain aircraft; 5) the effect on aircraft demand and build rates of changing customer preferences for business aircraft, including the effect of global economic conditions on the business aircraft market and expanding conflicts or political unrest in the Middle East or Asia; 6) customer cancellations or deferrals as a result of global economic uncertainty; 7) the effect of economic conditions in the industries and markets in which we operate in the U.S. and globally and any changes therein, including fluctuations in foreign currency exchange rates; 8) the success and timely execution of key milestones such as receipt of necessary regulatory approvals and customer adherence to their announced schedules; 9) our ability to successfully negotiate future pricing under our supply agreements with Boeing and our other customers; 10) our ability to enter into profitable supply arrangements with additional customers; 11) the ability of all parties to satisfy their performance requirements under existing supply contracts with our two major customers, Boeing and Airbus, and other customers, and the risk of nonpayment by such customers; 12) any adverse impact on Boeing's and Airbus' production of aircraft resulting from cancellations, deferrals or reduced orders by their customers or from labor disputes or acts of terrorism; 13) any adverse impact on the demand for air travel or our operations from the outbreak of diseases or epidemic or pandemic outbreaks; 14) our ability to avoid or recover from cyber-based or other security attacks, information technology failures or other disruptions; 15) returns on pension plan assets and the impact of future discount rate changes on pension obligations; 16) our ability to borrow additional funds or refinance debt; 17) competition from commercial aerospace original equipment manufacturers and other aerostructures suppliers; 18) the effect of governmental laws, such as U.S. export control laws and U.S. and foreign anti-bribery laws such as the Foreign Corrupt Practices Act and the United Kingdom Bribery Act, and environmental laws and agency regulations, both in the U.S. and abroad; 19) any reduction in our credit ratings; 20) our dependence on our suppliers, as well as the cost and availability of raw materials and purchased components; 21) our ability to recruit and retain highly-skilled employees and our relationships with the unions representing many of our employees; 22) spending by the U.S. and other governments on defense; 23) the possibility that our cash flows and borrowing facilities may not be adequate for our additional capital needs or for payment of interest on and principal of our indebtedness; 24) our exposure under our existing senior secured revolving credit facility to higher interest payments should interest rates increase substantially; 25) the effectiveness of any interest rate hedging programs; 26) the effectiveness of our internal control over financial reporting; 27) the outcome or impact of ongoing or future litigation, claims and regulatory actions; and 28) exposure to potential product liability and warranty claims. These factors are not exhaustive and it is not possible for us to predict all factors that could cause actual results to differ materially from those reflected in our forward-looking statements. These factors speak only as of the date hereof, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. As with any projection or forecast, these statements are inherently susceptible to uncertainty and changes in circumstances. Except to the extent required by law, we undertake no obligation to, and expressly disclaim any obligation to, publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
Spirit Shipset Deliveries
(one shipset equals one aircraft)
3rd Quarter Nine Months
----------- -----------
2016 2015 2016 2015
---- ---- ---- ----
B737 126 127 384 389
B747 2 4 7 12
B767 6 3 19 13
B777 26 27 77 78
B787 30 31 99 97
--- --- --- ---
Total 190 192 586 589
A320 Family 119 115 411 370
A330/340 17 17 50 63
A350 16 8 50 23
A380 4 6 17 18
--- --- --- ---
Total 156 146 528 474
Business/Regional Jet 22 9 59 42
--- --- --- ---
Total Spirit 368 347 1,173 1,105
=== === ===== =====
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 29, 2016 October 1, 2015 September 29, 2016 October 1, 2015
------------------ --------------- ------------------ ---------------
($ in millions, except per share data)
Net revenues $1,711.4 $1,593.6 $5,222.9 $5,034.5
Operating costs and expenses:
Cost of sales 1,439.4 1,341.0 4,470.4 4,197.2
Selling, general and
administrative 52.2 54.5 172.4 159.9
Research and development 5.4 6.5 15.9 20.2
--- --- ---- ----
Total operating costs and
expenses 1,497.0 1,402.0 4,658.7 4,377.3
Operating income 214.4 191.6 564.2 657.2
Interest expense and financing
fee amortization (12.2) (11.7) (47.5) (41.7)
Other expense, net (0.3) (2.5) (8.7) (0.8)
---- ---- ---- ----
Income before income taxes
and equity in net income of
affiliate 201.9 177.4 508.0 614.7
Income tax (provision) benefit (57.3) 135.9 (147.8) 34.8
----- ----- ------ ----
Income before equity in net
income of affiliate 144.6 313.3 360.2 649.5
Equity in net income of
affiliate 0.5 0.3 1.3 0.9
--- --- --- ---
Net income $145.1 $313.6 $361.5 $650.4
Earnings per share
Basic $1.16 $2.25 $2.82 $4.67
Shares 124.4 139.3 128.2 139.1
Diluted $1.16 $2.24 $2.80 $4.64
Shares 125.3 140.2 129.0 140.1
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
September 29, 2016 December 31, 2015
------------------ -----------------
($ in millions)
Current assets
Cash and cash equivalents $670.4 $957.3
Accounts receivable, net 748.6 537.0
Inventory, net 1,488.1 1,774.4
Other current assets 25.1 30.4
---- ----
Total current assets 2,932.2 3,299.1
Property, plant and equipment, net 1,934.7 1,950.7
Pension assets 256.1 246.9
Other assets 238.2 267.8
----- -----
Total assets $5,361.2 $5,764.5
======== ========
Current liabilities
Accounts payable $591.8 $618.2
Accrued expenses 227.0 230.2
Profit Sharing 64.0 61.6
Current portion of long-term debt 34.2 34.9
Advance payments, short-term 201.4 178.3
Deferred revenue and other deferred
credits, short-term 311.5 285.5
Deferred grant income liability - current 13.8 11.9
Other current liabilities 84.6 37.7
---- ----
Total current liabilities 1,528.3 1,458.3
Long-term debt 1,071.1 1,085.3
Advance payments, long-term 382.5 507.4
Pension/OPEB obligation 71.6 67.7
Deferred revenue and other deferred
credits 167.3 170.0
Deferred grant income liability - non-
current 68.5 82.3
Other liabilities 262.6 273.5
Equity
Preferred stock, par value $0.01,
10,000,000 shares authorized, no shares
issued - -
Common stock, Class A par value $0.01,
200,000,000 shares authorized,
121,660,191 and 135,617,589 shares
issued and outstanding, respectively 1.2 1.4
Common stock, Class B par value $0.01,
150,000,000 shares authorized, 121
shares issued and outstanding each
period, respectively - -
Additional paid-in capital 1,072.1 1,051.6
Accumulated other comprehensive loss (203.4) (160.5)
Retained earnings 2,017.7 1,656.2
Treasury stock, at cost (23,936,092 and
9,691,865 shares, respectively) (1,078.8) (429.2)
-------- ------
Total shareholders' equity 1,808.8 2,119.5
Noncontrolling interest 0.5 0.5
--- ---
Total equity 1,809.3 2,120.0
------- -------
Total liabilities and equity $5,361.2 $5,764.5
======== ========
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
For the Nine Months Ended
-------------------------
September 29, 2016 October 1, 2015
------------------ ---------------
($ in millions)
Operating activities
Net income $361.5 $650.4
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation expense 149.1 133.4
Amortization expense 0.2 0.6
Amortization of deferred financing
fees 18.5 6.0
Accretion of customer supply agreement 3.5 1.6
Employee stock compensation expense 35.7 19.0
Excess tax benefits from share-based
payment arrangements 0.1 (10.7)
Loss from hedge contracts - 1.6
Loss from foreign currency
transactions 15.9 6.3
(Gain) loss on disposition of assets (0.5) 3.0
Deferred taxes 34.7 (200.7)
Pension and other post-retirement
benefits, net (5.0) (19.7)
Grant liability amortization (8.6) (7.5)
Equity in net income of affiliate (1.3) (0.9)
Changes in assets and liabilities
Accounts receivable, net (220.8) 24.4
Inventory, net 257.3 (53.9)
Accounts payable and accrued
liabilities (18.6) 11.2
Profit sharing/deferred compensation 2.8 (48.8)
Advance payments (101.8) (75.0)
Income taxes receivable/payable 1.3 179.6
Deferred revenue and other deferred
credits 26.0 290.3
Other 24.4 59.2
Net cash provided by operating
activities $574.4 $969.4
------ ------
Investing activities
Purchase of property, plant and
equipment (156.8) (216.5)
Proceeds from sale of assets 0.6 1.8
Net cash used in investing activities ($156.2) ($214.7)
------- -------
Financing activities
Proceeds from issuance of debt - 535.0
Proceeds from issuance of bonds 299.8 -
Principal payments of debt (16.7) (29.2)
Payments on term loan - (534.9)
Payments on bonds (300.0) -
Taxes paid related to net share
settlement awards (15.2) (20.7)
Excess tax benefit from share-based
payment arrangements (0.1) 10.7
Debt issuance and financing costs (17.2) (4.7)
Purchase of treasury stock (649.6) (45.9)
Net cash used in financing activities ($699.0) ($89.7)
------- ------
Effect of exchange rate changes on
cash and cash equivalents (6.1) (0.2)
---- ----
Net (decrease) increase in cash and
cash equivalents for the period ($286.9) $664.8
Cash and cash equivalents, beginning
of the period 957.3 377.9
Cash and cash equivalents, end of the
period $670.4 $1,042.7
====== ========
Appendix
Management believes that the non-GAAP (Generally Accepted Accounting Principles) measures (indicated by *) used in this report provide investors with important perspectives into the company's ongoing business performance. The company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently.
Adjusted EPS
3rd Quarter Nine Months Guidance
----------- --------
2016 2015 2016 2015 2016
---- ---- ---- ---- ----
GAAP Diluted
Earnings Per
Share $1.16 $2.24 $2.80 $4.64 $3.65 - $3.80
Impact of
Airbus
Agreement, CEO
Retirement,
and Debt
Refinancing - - 0.86 a - 0.86 a
Impact of
Partial
Release of
Deferred Tax
Asset
Valuation
Allowance - (1.35) b - (1.67) c -
--- ----- ----- ---
Adjusted
Diluted
Earnings Per
Share $1.16 $0.89 $3.66 $2.97 ~ $4.50 - $4.65
Diluted Shares 125.3 140.2 129.0 140.1
a Represents
the net
earnings
per share
impact of
the Airbus
agreement
($0.68),
CEO
retirement
costs
($0.11) and
debt
refinancing
charge
($0.07)
b Represents
the net
earnings
per share
impact of
deferred
tax asset
valuation
allowance
of $189.4
million
c Represents
the net
earnings
per share
impact of
deferred
tax asset
valuation
allowance
of $233.5
million
Free Cash Flow
($ in millions)
3rd Quarter Nine Months Guidance
----------- ----------- --------
2016 2015 2016 2015 2016
---- ---- ---- ---- ----
Cash Provided by
Operating
Activities $266 $240 $574 $969 $650 - $725
Capital
Expenditures (52) (101) (157) (216) (250 - 300)
--- ---- ---- ---- ----------
Free Cash Flow $214 $139 $417 $753
Cash Received
under 787
Interim Pricing
Agreement - (63) (43) (146)
--- --- --- ----
Adjusted Free
Cash Flow $214 $76 $374 $607 $400 - $425
* Non-GAAP financial measure, see Appendix for reconciliation
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