Spirit AeroSystems Holdings, Inc. (SPR)
Q4 2012 Earnings Call
February 12, 2013 11:00 AM ET
Coleen Tabor – Director, IR
Jeff Turner – President and CEO
Phil Anderson – SVP and CFO
Doug Harned – Sanford Bernstein
Robert Spingarn – Credit Suisse
Christine Lewald – Bank of America
Sam Pearlstein – Wells Fargo
Myles Walton – Deutsche Bank
Joe Nadol – JP Morgan
Carter Copeland – Barclays
Cai von Rumohr – Cowen & Company
Carter Leake – BB&T Capital Markets
George Shapiro – Shapiro Research
Michael Ciarmoli – KeyBanc Capital Markets
Carl Oshlager – RBC
Previous Statements by SPR
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Thank you, and good morning. Welcome to Spirit’s Fourth Quarter and Full Year 2012 Earnings Call. I’m Coleen Tabor, and with me today are Jeff Turner, Spirit’s President and Chief Executive Officer, and Phil Anderson, Spirit’s Senior Vice President and Chief Financial Officer. After brief comments by Jeff and Phil regarding our performance and outlook, we’ll be glad to take your questions. In order to allow everyone to participate in the question-and-answer segment, we do ask that you limit yourself to one question.
Before we begin, I need to remind you that any projections or goals we may include in our discussion today are likely to involve risks, which are detailed in our news releases, in our SEC filings and in the forward-looking statement at the end of this Web presentation. As a reminder, you can follow today’s broadcast and slide presentation on our website at spiritaero.com.
With that, I’d like to turn the call over to our Chief Executive Officer, Jeff Turner.
Thank you, Coleen, and good morning. Let me welcome you to Spirit’s Fourth Quarter and Full Year Earnings Call. I’ll begin with a look at our business and related performance, and then Phil will review the financial results. After that, we’ll be glad to take your questions.
2012 saw strong top line growth in core operating results, as deliveries grew by more than 13% over 2011 and annual revenues increased 11% to record levels. In 2012, we successfully implemented production rate increases to unprecedented levels on our core programs and continued to deliver strong core operating results, while managing both the financial and operational impacts of the severe weather event at our facility in Wichita, Kansas.
While the company’s strong core business generated the profitability and cash that we expected, these results were overshadowed by cost challenges on development programs in the year. Our results, along with several significant accomplishments during the year, demonstrate the complexity of our business.
A few of the highlights from 2012 include: we delivered initial A350 XWB production units to our customer; we celebrated with our customers as they achieved tight certification and delivery on the G650 and G280 programs; we successfully executed rate increases on the 787 program, ending the year at five per month; we delivered the first flight test C series pylon to our customer; and we strengthened our work force partnerships by finalizing long-term agreements with Spirit’s Wichita engineering unit and the IAM unit in North Carolina.
While we remain watchful of global economic and political dynamics, we are closely managing our capital spend to support increased demand for our products, including the derivative and next-generation airplanes like the 737 MAX, the A320neo, the 787 and the A350. They drive clear line of sight into Spirit’s backlog of approximately $35 billion.
Now let’s talk about some of the specifics across the business during the quarter, beginning on Slide 3. Fuselage Systems had strong top line growth and operating performance, with margins of 14% on $680 million in revenue during the fourth quarter, as volumes across both core and new programs increased, including the anticipated increase in zero-margin revenue. The Fuselage segment’s high rate 737 production line continues to perform well, as the team delivered its 4,300th ship set of the Next-Generation fuselage.
During the quarter, the Fuselage team delivered the third A350 XWB composite center fuselage to our Airbus customer. And we congratulate our customer as they achieved the important milestone of the first structurally complete A350 XWB flight test aircraft late in the year.
The 787 team continued to support our customer by increasing deliveries in the quarter to 15, more than twice the number of deliveries compared to a year ago, demonstrating our successful rate increase to five per month. Milestones in the quarter included the delivery of the 99 787-4 fuselage section and the celebration of the rollout of the 100th unit.
On Slide 4, you see the Propulsion team delivered solid operating margin of 13% on $368 million in revenue as volumes across core and new programs as well as aftermarket increased. Current quarter margin was impacted by the restart of the 767 Pratt & Whitney and nacelle and increased revenue from zero-margin new programs.
The Propulsion team’s core business is performing well at higher rates as we deliver the 4,300 737 Next-Generation engine pylons and thrust reversers in the quarter. Additionally, we continue to progress as the 787 team ship pylon line unit 102 in the quarter. The team also delivered the 1,075th 777 nacelle and pylon packages. In addition to continued development on the 737 MAX and the 767 Tanker, the team delivered the first flight test C Series pylon and continued to make progress on the design effort for the MRJ pylon in the quarter.