BEAV

B/E Aerospace, Inc. (BEAV)

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Industry: Consumer Durables
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BE Aerospace Inc. (BEAV)

Q3 2010 Earnings Call

October 25, 2010 04:30 p.m. ET

Executives

Amin Khoury – Chairman and Chief Executive Officer

Mike Baughan – President and Chief Operations Officer

Tom McCaffery – SVP and Chief Financial Officer

Greg Powell – Vice President, Investor Relations

Analysts

Gautam Khanna – Cowen and Company

David Strauss – UBS

Eric Hugel – Stephens

J.B. Groh – D.A. Davidson

Troy Lahr – Stifel Nicolaus

Carter Leake – Davenport & Company

Howard Rubel – Jefferies

Presentation

Operator

Good afternoon. My name is Jessica Morgan, and I’ll be your conference facilitator today. At this time, I'd like to welcome everyone to the BE Aerospace third quarter 2010 earnings conference call. (Operator Instructions)

As a reminder, ladies and gentlemen this conference is being recorded this day, October 25, 2010. Thank you. I'd now like to introduce BE Aerospace’s Vice President of Investor Relations, Greg Powell. Mr. Powell, you may begin your conference.

Greg Powell

Thank you Jessica, good morning, everyone and thank you for joining us this afternoon. Today, we are here to discuss our financial results for the third quarter ended September 30, 2010. By now you should have received a copy of our news release that we issued earlier today. If you haven't received it, you will find a copy on our website. We will begin this morning with remarks from Amin Khoury our Founder, Chairman and Chief Executive Officer of BE Aerospace, and then we will take your questions.

For today’s call we have prepared a few slides to help you follow on our discussion. You can find our presentation on the Investor Relations page of the BE 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 for the call this afternoon are Mike Baughan, President and Chief Operating Officer and Tom McCaffery, Senior Vice President and Chief Financial Officer. 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 filing with the SEC. After our presentation, we will address your questions. At that time, the operator, Jessica, will provide instructions on how to ask questions. Please limit your questions to no more than two at a time so that we’ll be able to get to all of you. And now, I will turn the call over to Amin.

Amin Khoury

Thank you, Greg, and good afternoon everyone. I’d like to briefly highlight a few of our recent activities. First, I’m pleased to report that our Q3 results were above our earlier guidance. Q3 consolidated earnings growth was just shy of 20%, and was driven by solid revenue growth and substantial margin expansion at both our consumables management segment and our commercial aircraft segment. Consumable management segment revenues and operating earnings increased almost 7% and 21% respectively, while commercial aircraft segment revenues and operating earnings increased approximately 12% and 30% respectively.

Q3 pretax earnings increased 32% year over year, a Q3 free cash flow conversion ratio was 153%, and our backlog grew for the fourth consecutive quarter. Second, as you know, during the quarter, we were also intensively engaged in M&A and financing activities. On September 16th, we issued $650 million of 6 and 7/8% senior notes due 2020. In addition, we completed due diligence on two acquisition opportunities, one in our manufacturing business, and one in our distribution business. Specifically, we signed definitive agreements to acquire the TSI Group on October 4th, and Satair’s Aerospace Fastener distribution business on October 25th, for a total of approximately $475 million in cash, excluding costs and expenses.

Both acquisitions are expected to be neutral to earnings per share in 2011, and to be significantly accreted thereafter. Third, based on our record backlog, and our expectation of continued growth in passenger travel, we expect strong full year 2011 EPS growth of about 25%, to approximately $1.90 to $1.95 per diluted share. Looking further ahead, and considering our record backlog, the expected robust wide-bodied delivery cycle beginning in 2011 and continuing but moderating demand for passenger travel, we expect continued strong EPS growth for the next few years.

Now, I will briefly discuss the current market environment, then I’ll discuss, in greater detail, our two acquisitions. Thereafter, we’ll review our Q3 financial and operating results, and finally we’ll discuss our updated guidance for the remainder of 2010 and our outlook for 2011. Let’s first discuss the current market environment. Important global airline metrics which we follow are almost all positive. As a result, airline load factors, yields, and profitability are at near record levels. During Q2 alone, the global airline industry earned $4.4 billion. And IOTA now forecasts airlines to post aggregate global profits of about $9 billion in 2010.

This would make 2010 one of the most profitable years in the past two decades. Now let’s discuss our recently announced acquisitions. We signed definitive agreements to acquire TSI on October 4th, and Satair’s Aerospace fastener distribution business today, October 25th, for an aggregate of approximately $475 million, excluding costs and expenses. Both acquisitions are expected to close during Q4, 2010, to be neutral to earnings per share in 2011, and to be significantly accreted thereafter. TSI is the market leader, with more than 50% market share in the engineering and manufacture of customized, wholly integrated thermal management and inter connect solutions for a broad range of aerospace industry customers.

Read the rest of this transcript for free on seekingalpha.com