BEAV

B/E Aerospace, Inc. (BEAV)

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Exchange: NASDAQ
Industry: Consumer Durables
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B/E Aerospace (BEAV)

Q1 2013 Earnings Call

April 22, 2013 9:00 am ET

Executives

Greg Powell - Vice President of Investor Relations

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

Werner Lieberherr - President and Chief Operating Officer

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

Analysts

David E. Strauss - UBS Investment Bank, Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Noah Poponak - Goldman Sachs Group Inc., Research Division

F. Carter Leake - BB&T Capital Markets, Research Division

Robert Stallard - RBC Capital Markets, LLC, Research Division

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Myles A. Walton - Deutsche Bank AG, Research Division

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

Presentation

Operator

Good morning. My name is Jessica Morgan, and I'll be your conference facilitator today. At this time, I'd like to welcome everyone to the B/E Aerospace First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, the conference is being recorded this day, April 22, 2013. Thank you. I would now like to introduce B/E Aerospace's Vice President of Investor Relations, Greg Powell. Mr. Powell, you may begin your conference.

Greg Powell

Thank you, Jessica. Good morning, and thank you for joining us this morning. Today, we're here to discuss our financial results for the first quarter ended March 31, 2013. By now, you should have received a copy of the news release we will -- issued earlier this morning. If you haven't received it, you'll find a copy on our website.

We'll begin this morning with remarks from Amin Khoury, our Founder, Chairman and Chief Executive Officer, and then we will take your questions. For today's call, we have prepared a few slides to help you follow our discussion. You can find our presentation on the Investor Relations page of the B/E Aerospace website at beaerospace.com. In addition, copies of the slides will be posted on our website for you to refer to after the call.

Joining us this morning on the call are Werner Lieberherr, President and Chief Operating Officer; and Tom McCaffrey, Senior Vice President and CFO. As always, in our prepared remarks and our responses to your questions, we rely on the Safe Harbor exemptions under the various securities acts and our Safe Harbor statement in the company's filings with the Securities and Exchange Commission.

We will address questions following our prepared remarks. At that time, Jessica will provide instructions. [Operator Instructions]

And now, I'll turn the call over to Amin.

Amin J. Khoury

Thank you, Greg, and good morning, everyone. Today, we reported a strong start to 2013. Our first quarter 2013 results included record quarterly bookings, revenues, operating earnings, operating margin, net earnings and earnings per share. Our first quarter results include revenue growth of 13%, operating earnings growth of 18% and operating margin of 18.2% and a 30% increase in earnings per share. Our 18.2% operating margin represents an 80 basis point year-over-year increase. Our revenue growth continues to be driven primarily by the robust new aircraft delivery cycle. Approximately 61% of first quarter revenues was driven by demand for products for new-buy aircraft, reflecting both robust new aircraft deliveries and continued softness in aftermarket demand.

In addition, our consolidated first quarter results increased significantly as compared with the fourth quarter of 2012. On a sequential basis, comparing our first quarter results to our fourth quarter 2012 results, revenues increased 5%, operating earnings increased 11%, operating margin expanded 100 basis points and earnings per share increased 19%.

Before discussing details of our first quarter 2013 financial performance, I would like to spend a few minutes discussing the current market environment. In addition, I will ask Werner to provide an update on the recent Hamburg, Germany, Aircraft Interiors Exposition, which was very successful for B/E Aerospace. Then we will discuss our results for the quarter, and lastly, we will review our financial guidance for 2013.

Now let's briefly discuss the current commercial aerospace market environment. This aerospace up cycle is now in full swing with strong global airline traffic growth and an unprecedented period of airline profitability, driving new aircraft orders and higher production rates by the OEMs.

A continued strong Boeing and Airbus rolling 12-month book-to-bill ratio of approximately 1.8x has pushed the aggregate OEM backlogs to record levels. In the first quarter of 2013, Boeing and Airbus have disclosed 621 net new orders. And in addition to firm orders, Airbus has announced 272 commitments and Boeing has announced 301. So total orders plus commitments were a very strong 1,194 aircraft. As a result of the aforementioned strong backlogs, the OEMs have been increasing aircraft production to record levels, but the ramp-up in production is occurring at a relatively modest rate compared to prior production ramp-up. In fact, the number of deliveries as a percentage of the backlog has stabilized at historically low rates between 10% and 15% of backlog.

During March, IATA made its third upward revision to its financial outlook for the global airline industry. For 2013, IATA now expects airlines globally to report very strong aggregate profits of approximately $10.6 billion, which would be up approximately 40% over 2012 profit. The 2013 IATA forecast is based on 2013 global passenger traffic growth of around 5.4%, which is an increase over its initial forecast of 4.5% growth, and they expect capacity to grow at about 4%. Regionally, traffic and capacity are expected to grow more slowly in North America and, particularly, in Europe, while stronger growth is expected in the emerging markets: Middle East, Asia, PacRim and Latin America.

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