B/E Aerospace, Inc. (BEAV)

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B/E Aerospace (BEAV)

Q4 2009 Earnings Call

February 2, 2010 9:00 am ET


Greg Powell – Vice President Investor Relations

Amin J. Khoury - Chairman of the Board and Chief Executive Officer

Thomas P. McCaffrey - Senior Vice President and Chief Financial Officer


Robert Spingarn - Credit Suisse

Myles Walton - Oppenheimer & Co.

Robert Stallard - Macquarie Research Equities

Peter Arment - Broadpoint AmTech

Gautam Khanna - Cowen and Company

Troy Lahr - Stifel Nicolaus & Company

Eric Hugel - Stephens Inc.

Howard Rubel - Jefferies & Co.

Carter Leake - Davenport & Company

Colin Campbell – Société Générale



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 fourth quarter 2009 earnings conference call. All audience lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator instructions)

As a reminder, ladies and gentlemen, this conference is being recorded this day, February 2, 2010. 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 to everyone, and thank you for joining us this morning. Today we are here to discuss our financial results for the fourth quarter and year ended December 31, 2009. By now you should have received a copy of the news release we issued earlier this morning. If you haven't received it, you'll find a copy on our website.

We will 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 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 In addition, copies of the slides will be posted on our website for you to refer to after the call.

Also joining us for the call this morning is Tom McCaffrey, Senior Vice President and Chief Financial Officer. Mike Baughan, our President and Chief Operating Officer, is in Asia this morning on company business and will not be on the call.

As always, in our prepared remarks and our responses to your questions, we will rely on the Safe Harbor exemptions under the various Securities Acts and our Safe Harbor statements in the company's filings with the SEC.

We will address questions following our prepared remarks. At that time, Jessica will provide instructions. As in the past, please limit your questions to no more than two at a time. Now I will turn the call over to Amin Khoury.

Amin J. Khoury

Thank you Greg and good morning everyone. Well 2009 was a turbulent year for the industry. Global air travel was down about 3.5%, the largest decline on record. It reflects an actual drop in global GDP, the first negative growth for the global economy since the Great Depression.

Airline revenues fell sharply, resulting in $11 billion in global airline losses and causing significant global capacity reductions. Airlines, aircraft OEMs, subcontractors, and MROs all implemented stringent cash conservation measures which resulted in the deferral of fleet refurbishment programs and a massive de-stocking of consumables and spare parts.

This de-stocking continued for most of the year, resulting in an approximate 30% decrease in demand for commercial aircraft spares and consumable products. I am pleased to report that B/E Aerospace’s response to these challenges has been aggressive and effective.

Since July 2008, we’ve reduced our headcount by about 24%. Additionally, the cost synergies associated with our ongoing HCS integration, combined with the continued success of our corporate wide lien and supply chain initiatives, have further reduced our cost structure.

In fact, the company’s 2009 operating margin of 16.8% adjusted for foreign exchange effects and AIT costs expanded about 100 basis points as compared to 2008, similarly adjusted. This was in spite of a 21% reduction in revenues.

In addition to very successful cost management strategies during 2009, we made major strides towards completing the integration of HCS, maintained our R&D spending on key initiatives, maintained or expanded our market shares in each of our key product offerings, and made the inventory investments required to conform HCS to our consumables management segment inventory stocking business model. We generated healthy free cash flows in the second half of the year. We prepaid $100 million of long term debt, and we improved our net debt to capital ratio by 470 basis points to 38%.

So all in all, our execution in 2009 was pretty good. We will get into the specifics of our financial performance in a moment, but before we do, I’d like to comment on the current macroeconomic environment and the impact it’s having on our customers and on our business. Then we will review our fourth quarter and fourth quarter and full year 2009 financial and operating results, and finally we’ll discuss our guidance for 2010.

Let’s first discuss the current market environment. Although global economic signals remain mixed, there are some signs of stabilization regarding several of the metrics which we follow. December’s international traffic improved 4.5% compared to a year ago. Asia and the Middle East experienced significant traffic growth of 8% and 19% respectively.

US and European passenger traffic continues to lag the rest of the world with declines of 1.2% and 0.4% respectively. However, North American and European traffic has increased from spring 2009 lows. Overall, international air traffic volumes have risen about 10% from the February low point. Premium passenger demand has improved from the trough levels reached in March 2009 by about 5% but is still down about 20% from the peak.

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