B/E Aerospace, Inc. (BEAV)

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BE Aerospace (BEAV)

Q4 2010 Earnings Call

February 03, 2011 9:00 am ET


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

Greg Powell - Vice President of Investor Relations

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

W. Lieberherr - President and Chief Operating Officer


Gautam Khanna - Cowen and Company, LLC

Howard Rubel - Jefferies & Company, Inc.

Richard Safran - Buckingham Research Group, Inc.

Robert Spingarn - Crédit Suisse AG

Noah Poponak - Goldman Sachs Group Inc.

Myles Walton - Deutsche Bank AG

Troy Lahr - Stifel, Nicolaus & Co., Inc.

Peter Arment - Gleacher & Company, Inc.

David Strauss - UBS Investment Bank



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 2010 Earnings Conference Call. [Operator Instructions] I'd 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 are here to discuss our financial results for the fourth quarter and the year ended December 31, 2010. By now, you should have received a copy of the news release 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, 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 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 morning are Werner Lieberherr, our President and Chief Operating Officer; and Tom McCaffery, 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 statements in the company's filings with the SEC.

We will address questions following our prepared remarks. At that time, Jessica will open it up and provide instructions for you. [Operator Instructions] And now I will turn the call over to Amin Khoury.

Amin Khoury

Thank you, Greg, and good morning, everyone. Well, we had an extremely busy and productive fourth quarter. We completed the acquisitions of the TSI Group Inc. and Satair's fastener distribution business. We prepaid all of our bank term debt and replaced both our term loan and our revolving credit facility with a new $750 million revolving line of credit. And those efforts, together with our successfully executed September senior notes offering, has positioned the company to deliver excellent results in 2011 and beyond.

In connection with these transactions, we incurred approximately $9 million of acquisitions and severance-related costs and approximately $10 million of debt prepayment costs. While we will present both adjusted and GAAP results, until we indicate otherwise, we will be discussing our financial results exclusive of these items.

From a sales and marketing perspective, we had one of the most successful years in our history. Beginning earlier in the year and culminating during the fourth quarter, we won a number of coach class seating orders, which were placed contemporaneously with coach class retrofit orders. We had a very successful launch of our Pinnacle main cabin seating platform with total orders for more than 1,000 aircraft, both new-buy and retrofit, valued in excess of $400 million. We won a number of important awards in China, where we continue to strengthen our market position. And most importantly, during the fourth quarter, we experienced double-digit bookings growth in both our Consumables and Commercial Aircraft segments spares business.

Our fourth quarter operating margin, adjusted to exclude items, expanded by 180 basis points, 16.8%, and our fourth quarter consolidated earnings before income taxes increased 31% year-over-year. We generated strong free cash flow of $85 million, achieving a free cash flow conversion ratio of 272% of reported GAAP net earnings and 180% of adjusted net earnings. Our book-to-bill ratio was 1.1:1, and our backlog, both booked and awarded but unbooked, reached a record $5.75 billion.

Our Consumables Management segment [CMS] fourth quarter 2010 operating earnings increased 23%, and the Consumables Management segment operating margin increased 210 basis points, both as compared to the prior year period. Our Commercial Aircraft segment [CAS] operating earnings increased 43%, and the Commercial Aircraft segment operating margin increased 280 basis points, again, both as compared to the fourth quarter of the prior year.

Now let's briefly discuss the current market environment. The important global airline metrics, which we follow, are almost all positive. International traffic was up 8.2% for all of 2010. International passenger capacity during 2010 increased by 4.4% resulting in higher load factors, higher ticket prices and higher yields. In fact, airline load factors, yields and profitability are at near record levels. During the third quarter alone, the global airline industry earned about $10 billion. And IATA [International Air Transport Association ] now expect airlines to post aggregate global profits in excess of $15 billion for the year just ended. This would make 2010 the most profitable year ever for the airline industry.

Premium international traffic also continues to rise. For November, the most recently reported month, international premium travel was up 9.6%. And while year-to-date through November 2010 international premium travel was up 9.3%, the number of premium class passengers is still about 12% below the precrisis peak.

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