BEAV

B/E Aerospace, Inc. (BEAV)

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Exchange: NASDAQ
Industry: Consumer Durables
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BE Aerospace, Inc. (BEAV)

March 05, 2013 8:00 am ET

Executives

Amin J. Khoury - Co-Founder, Executive Chairman and Chief Executive Officer

T. P. McCaffrey - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Presentation

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

All right, good morning. We're going to get started here with our aerospace defense track. We are pleased to start out with B/E Aerospace. Amin Khoury is here, Chairman and CEO. Seated next to him, to his left, is Tom McCaffrey, SVP and CFO. And Greg Powell, VP of IR, is also in the audience here. So I'll turn it right over to Amin.

Amin J. Khoury

Thank you, Joe. And good morning, everyone. I will do a little bit of a company overview. And after that, both Tom and I will be happy to take your questions.

So B/E Aerospace is the largest global manufacturer of equipment for the passenger cabins of airplanes. We're also the largest global distributor of aerospace fasteners and consumables. The company has a strong balance sheet, excellent liquidity and no debt maturities until 2020. Our equity market capitalization is about $5.2 billion. The company is characterized by market share leadership in pretty much every product category in which we're involved. We have a large installed base which generates spares and retrofit programs. It's about a $9.5 billion base. And we have the largest industry sales force, R&D organization and customer service group in the industry.

Our customer base is the airlines, that's our largest single customer base, but it also includes the leasing companies and the commercial airliner and business jet OEMs. About 50% of our revenues last year were to foreign customers and 50% domestic, and 14% of our revenues last year were sales directly to Boeing or Airbus.

Over the last 7 or 8 years, the company has grown from around $850 million in revenues to a little over $3 billion last year. Revenue compound annual growth rate has been about 20% over that period of time, and our operating earnings growth rate has been about 28% compounded. Margins have expanded from 11% to 17.5%, so about a 600-basis-point expansion in operating margin over the period.

Last year, we reported record results, as we did in 2011. So revenues were up 23%, operating earnings were up 26% and earnings per share were up 26%. We also had record bookings last year and ended the year with a record backlog. So our backlog as of the end of the year was $3.75 billion, but that excludes $4.5 billion of programs that we've been awarded on a sole-source basis for which we don't yet have purchase orders. But as A350s begin to ship, all of those will have our galley systems. And as the 737s begin to ship starting in the third quarter of this year with their new lavatory configuration, which allows additional seats in each aircraft; our lav systems, including our lav structures, our lav toilets, our lav oxygen systems, our lav lighting systems, will be included in all the 737s. We've also developed some wastewater treatment systems. So the backlog is very strong and the company has some structural growth drivers, as well as the growth of new airplane deliveries, which are driving our growth rate. Our backlog is pretty well dispersed geographically. About 40% is in North America, 26% in Europe and 33% in emerging markets, Asia-Pac Rim, Middle East, et cetera. Our total backlog, both booked and programs awarded but unbooked, is about $8.25 billion and that is by far the largest backlog we've ever had.

These are some of the sole-source programs which we have been awarded. So to the left, this is our lavatory, which because of the Spacewall configuration allows an extra row of seats. And as I mentioned earlier, it has our lav toilet, our lav oxygen system, our lav lighting system, it has a lot of our equipment in here. And of course, it carries that equipment. So the A350 galley systems, they're lighter, take up much less space, require less power and are basically the carrier for our food and beverage preparation and storage equipment where we're the largest global provider.

This is the PSU, and so it's a passenger service unit and the oxygen system for both the 787 and the A350. And in fact, the passenger oxygen system on pretty much every in-production aircraft in the world is a B/E Aerospace system. And then finally, our 737 lighting system is -- it pretty much goes into every 737 which is delivered today.

Industry conditions are quite favorable. So Airbus and Boeing have record backlogs, about 8,000 aircraft in their backlogs. Twin-aisle aircraft, in particular, should grow at a healthy rate over the next several years. They've got about a 10% compound annual growth rate, about 1,135 wide-body airplane deliveries. And those carry a lot of the equipment which we manufacture. So Super First Class seats, First Class seats, coach seats, food and beverage preparation and storage equipment, oxygen systems, lighting systems, a lot of our equipment is carried in these wide-body aircraft. So that's very favorable for us.

The chart there on the lower right hand is very interesting. As a percentage of total backlog, deliveries by the majors is at a relatively low level. And last year, the additions, the net additions to aircraft, was around 550 aircraft to a fleet of about 18,000, so only about a 3% growth rate in active airplanes. And with a 5% growth rate in revenue passenger miles, airlines have been able to really jam the airplanes full of folks. They've been able to raise prices significantly, and they've been able to make some money in a tough environment in terms of oil prices and the economy.

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