Spirit AeroSystems Holdings (SPR)
Q3 2012 Earnings Call
November 01, 2012 11:00 am ET
Jeffrey L. Turner - Chief Executive Officer, President, Director and Member of Government Security Committee
Philip D. Anderson - Chief Financial Officer and Senior Vice President
Carter Copeland - Barclays Capital, Research Division
David E. Strauss - UBS Investment Bank, Research Division
Myles A. Walton - Deutsche Bank AG, Research Division
Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division
F. Carter Leake - BB&T Capital Markets, Research Division
Howard A. Rubel - Jefferies & Company, Inc., Research Division
Robert Spingarn - Crédit Suisse AG, Research Division
Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division
Joseph B. Nadol - JP Morgan Chase & Co, Research Division
Ronald J. Epstein - BofA Merrill Lynch, Research Division
Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division
Lucy Guo - Macquarie Research
Previous Statements by SPR
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Thank you, and good morning. Welcome to Spirit's Third Quarter 2012 Earnings Call. I'm Coleen Tabor, and with me today are Jeff Turner, Spirit's President and Chief Executive Officer; and Phil Anderson, Spirit's Senior Vice President and Chief Financial Officer.
After brief comments by Jeff and Phil regarding our performance and outlook, we'll be glad to take your questions. In order to allow everyone to participate in the question-and-answer segment, we do ask that you limit yourself to one question.
Before we begin, I need to remind you that any projections or goals we may include in our discussion today are likely to involve risks, which are detailed in our news release, in our SEC filings and in the forward-looking statement at the end of this web presentation. As a reminder, you can follow today's broadcast and slide presentation on our website at spiritaero.com.
With that, I'd like to turn the call over to our Chief Executive Officer, Jeff Turner.
Jeffrey L. Turner
Thank you, Coleen, and good morning. Let me welcome you to Spirit's third quarter earnings call. I'll begin with a look at our business and related performance, and then Phil will review the financial results. After that, we'll be glad to take your questions.
As we discussed last week, I am extremely disappointed we have not better managed the complexities surrounding our new programs that has resulted in the previously announced pre-tax $590 million charge this quarter. Understandably, many of you are also disappointed and focused on how we are managing these programs to turn them cash positive as soon as possible.
As I shared with you last week, we are doing this by strengthening our leadership team, our development disciplines and our management operating systems. The leadership alignment that drives this performance includes a significant infusement of skills in program management, supply chain management and engineering leadership. The development disciplines include program management; change management; contractual rigor; and engineering management tools application. Finally, the management operating system that enables us to drive cash generation on these programs is through shop floor operating performance, supply chain cost improvements and overhead management.
Turning to our core program results in the third quarter. The strong operating performance of our core programs is evident as revenue grew by 21%, and we saw the sixth consecutive quarter of year-over-year increases in deliveries.
Additionally, as we announced last week, we finalized the settlement with our insurers for all claims related to the April 14, 2012, severe weather event at our Wichita, Kansas facility.
Due to the quick response of our team and partners, we were able to mitigate the damage caused by the severe weather and ultimately reduce the final insurance claims significantly below initial estimates. The strength of the large commercial aircraft market continues, as global demand and order volumes for the Next Generation derivative airplanes, like the neo, A320neo and the 737 MAX drive clear line of sight into Spirit's backlog of approximately $34 billion.
Now let's talk about some of the specifics across the business during the quarter, beginning on Slide 3.
Fuselage Systems had strong top line growth and operating performance, with margins of 17% on $660 million in revenue during the third quarter, as volumes across the core programs increase. The Fuselage segment's high-volume 737 production line continues to perform well, as the group has now delivered more than 4,200 chipsets of the Next Generation fuselage.
During the quarter, the Fuselage team continued to make progress on the A350 program, having delivered the second composite center fuselage to our Airbus customer. The 787 team remains focused on supporting our customer and delivered the 84th forward fuselage section. Additionally in the quarter, the Fuselage team demonstrated continued success in producing 737 derivatives by delivering line unit 20 of the P-8A Poseidon fuselage.
Translating our success with derivative products to the Next Generation of airplanes is one of our strategic priorities, and we are proceeding well on the 737 MAX and the 767 Tanker programs as we move through our customer's gated process. We were pleased with the continued momentum on the 737 MAX.
On Slide 4, you'd see the Propulsion team reported operating margins of negative 27% on $358 million in revenue, as the quarter was impacted by the forward loss on the BR725 program. The segment's top line growth continues, as both core and new program deliveries continued to increase. Propulsion's core business is anchored by the 737 Next Generation Engine pylon and thrust reverser teams, who continue to perform well as the groups have now delivered more than 4,200 units of hardware.