B/E Aerospace Q2 Profit Drops; Adj. EPS Beats Consensus

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Updated: July 29, 2009

B/E Aerospace, Inc., a manufacturer of cabin interior products for commercial aircraft and business jets, Tuesday reported a 35% decline in second-quarter profit, as revenues slipped across all segments, reflecting primarily stringent cash conservation measures implemented by airlines and aerospace manufacturers. However, adjusted earnings topped Wall Street view, and the company also reiterated its full-year revenue guidance.

The Wellington, Florida-based company’s second-quarter net earnings dropped to $34.7 million or $0.35 per share from $53.9 million or $0.59 per share reported for the same period last year.

Adjusted net earnings, which exclude acquisition, integration and transition, or AIT, costs related to the acquisition of Honeywell Consumables Solutions, or HCS, distribution business, were $38.7 million or $0.39 per share. On average, 13 analysts polled by Thomson Reuters expected second-quarter earnings of $0.34 per share. Analysts’ estimates typically exclude special items.

The company said revenues for the second quarter dropped 30.1% to $474.8 million from pro forma revenues of $679.6 million reported in the second quarter of the prior year, as all the segments witnessed revenue declines. On a reported basis, second-quarter 2008 revenues were $522.2 million. Analysts were looking for quarterly revenues of $487.54 million.

BE Aerospace noted that pro forma second quarter 2008 results include the results of the acquired HCS business, as if the acquisition had occurred on January 1, 2008.

At the consumables management segment, quarterly revenues declined 30% to $196.6 million from pro forma revenues of $281 million in the previous year, due to a global destocking of consumables by airlines, MROs, and aerospace manufacturers.

In the commercial aircraft segment, second-quarter revenues were $223.9 million, down 31.4% from $326.2 million in pro forma revenues generated last year, reflecting retrofit program push outs, refurbishment deferrals and lower spares revenues.

Business Jet segment reported second-quarter revenues of $54.3 million, 25% lower than $72.4 million reported for the same period last year, owing to the slow down in both business jet deliveries and Super First Class products demand.

Operating earnings for the quarter dropped 30.8% to $73.9 million from pro forma $106.8 million in the previous year. On a reported basis, operating earnings for the second quarter of 2008 were $84.3 million.

Bookings during the just concluded quarter were about $400 million, a book-to-bill ratio of nearly 0.85 to 1. Backlog at the end of the quarter was about $2.75 billion, up 15% from last year.

According to Amin Khoury, Chairman and Chief Executive Officer of B/E Aerospace, "The recession continues to discourage high-yield business traffic, forcing carriers to discount heavily to fill planes with leisure travellers… Lower demand for air travel, a disproportionate reduction in premium travel, and rising oil prices have negatively impacted our global airline customers’ yields. These conditions will likely continue to impede bookings activity during 2009."

For the first quarter, the company’s earnings were $37.9 million or $0.38 per share on net sales of $523.7 million.

For the first half of the year, net earnings slipped to $72.6 million or $0.73 per share from $102.4 million or $1.11 per share in the previous year. Net sales dropped to $998.5 million from pro forma $1.30 billion in the previous year. On a reported basis, first-half 2008 revenues were $995.4 million.

On Monday, FBR Capital Markets upgraded BE Aerospace shares to "Outperform" from "Market Perform" with a price target of $22. Analyst Patrick McCarthy said that although the macro environment remains challenging, from current levels he thinks that the company is best positioned to outperform due to an anticipated rebound in the consumables portion of the commercial aerospace aftermarket as inventory de-stocking at the airlines declines.

The company said today that it is beginning to see some signs of stabilization in its markets, albeit at a much lower level. "While it appears that inventory destocking has run its course in North America, this is not the case in Europe, Asia and the Middle East which we believe still have approximately one quarter to go before their excess stocks will have been depleted. Overall demand for spares and consumables is expected to improve during 2010s," it added.

Looking ahead, for full-year 2009, the company said that net earnings per share are expected to be about $1.40 per share, while revenue guidance is unchanged at about $1.9 billion. Analysts expect full year earnings of $1.37 per share on revenues of $1.94 billion.

The company said overall demand for spares and consumables is expected to improve during 2010. However, it expects revenues to be 5% lower in 2010 than in 2009 primarily due to the lower level of bookings in 2009, a further deterioration in the business jet segment in 2010 and a lower level of new commercial aircraft deliveries in 2010. Yet, the company expects nearly flat 2010 earnings per share on the lower sales due to improved margins. Analysts expect 2010 earnings of $1.53 per share on revenues of $1.95 billion.

BEAV closed Monday’s regular trade at $15.31, up from the previous close of $15.04, on 1.75 million shares. For the past year, the stock traded in the range of $5.37-$28.70. 

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