B/E Aerospace, Inc. (BEAV)

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B/E Aerospace (BEAV)

Q3 2012 Earnings Call

October 23, 2012 9:00 am ET


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


Noah Poponak - Goldman Sachs Group Inc., Research Division

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

Myles A. Walton - Deutsche Bank AG, Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

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

Gautam Khanna - Cowen and Company, LLC, Research Division

David E. Strauss - UBS Investment Bank, Research Division



Good morning. My name is Jessica Morgan, and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the B/E Aerospace Third Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, the conference is being recorded this day, October 23, 2012. 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 are here to discuss our financial results for the third quarter ended September 30, 2012. By now, you should have received a copy of our news release we issued earlier today. If you haven't received it, you'll find a copy on our website.

This morning, we will begin with the remarks from Amin Khoury, Founder, Chairman and Chief Executive Officer of B/E Aerospace, and then we will take your questions.

For today's call, we've 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, 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 statements in the company's filings with the SEC. We will address your questions following our prepared remarks. [Operator Instructions] And now I will turn the call over to Amin Khoury.

Amin J. Khoury

Thank you, Greg, and good morning, everyone. We are pleased with our third quarter results, which were announced earlier this morning. Our third quarter results include revenue growth of 21% and operating margin, adjusted to exclude AIT costs, of 18.1%, representing a 50 basis point improvement. Our revenue growth continues to be driven primarily by the robust new aircraft delivery cycle.

Approximately 61% of third quarter revenues were driven by demand for products for new-buy aircraft, reflecting both robust new aircraft deliveries and weaker aftermarket demand.

In addition, as a result of our operational outperformance, which has resulted in record operating earnings for the 9-month year-to-date period and successfully executed tax planning initiatives, we've been able to raise our 2012 earnings guidance to $2.82 per share. The $2.82 per share guidance represents a $0.17 per share increase as compared to our original guidance of $2.65 per share, which we issued at this time last year.

As we move forward, we believe we are well positioned to generate double-digit revenue growth for the next several years based on our total backlog of $8.25 billion, both booked and awarded but unbooked; rapidly growing revenues from our supplier furnished equipment awards and related retrofit activity; our expectation for significantly higher levels of wide-body aircraft deliveries; the expectation for continued growth in global passenger travel and the attended increases in capacity.

Looking specifically at 2013, we are expecting approximately 10% revenue growth, notwithstanding a continuation of the week aftermarket environment. Our revenue plan is based primarily on our high-quality backlog and on the expectation of a robust level of wide-body deliveries. In addition, we are expecting approximately 20% earnings per share growth based on a continuation of margin expansion in all 3 segments of our business.

If we're discussing third quarter financial performance and providing specific revenue and earnings guidance for 2013, I would like to spend a few moments discussing the current market environment; then, we will discuss our results for the quarter; and lastly, we will review our financial guidance for 2013.

During the quarter, we were awarded a number of significant programs. I'd like to mention 4 major aircraft cabin interior awards. These 4 awards are initially valued at approximately $400 million and are indicative of the breadth of our innovative product offerings.

The awards include the company's first Boeing 777 LED lighting retrofit program for a major global airline. In an additional market share gain, we were awarded a Pinnacle main cabin seating program for a successful narrow-body airline to retrofit 70 aircraft and to outfit its 30 new-buy aircraft. We were also awarded the Super First Class cabin program to outfit a major international Asian airline's entire new-body, wide-body fleet -- new-buy wide-body fleet, excuse me. And finally, we entered into a long-term agreement to manufacture cabin interior equipment for the new Bombardier Global 7000 and Global 8000 business jets. I'm going to ask Werner to discuss these awards in greater detail shortly.

Now let's briefly discuss the current commercial aerospace market environment. Global industry industrial -- industry fortunes track developments in the global economy. Sluggish growth in the U.S., economic contraction in the Eurozone, the slowdown in the Chinese economy and 2 successive years of declining profits among the airlines globally are taking their toll. Airlines have responded, with among other things, careful capacity management, swift cost controls and cash conservation measures.

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