Spirit AeroSystems Holdings, Inc. Meets Guidance in 2016; Issues Increased 2017 Guidance

Published on : Wednesday, February 1, 2017

unnamed (6)Spirit AeroSystems Holdings, Inc., reported fourth quarter and full-year 2016 financial results driven by strong operating performance of mature programs.

 

“2016 was a strong year for Spirit,” Spirit President and CEO Tom Gentile said.  “We successfully negotiated a global settlement with Airbus on the A350, refinanced our debt after achieving an investment grade credit rating, returned $650 million in capital to shareholders through share repurchases, initiated our first dividend of $0.10 per share, made a seamless leadership transition, and laid the groundwork for a successful 2017.”

 

Table 1.  Summary Financial Results (unaudited)
4th Quarter Twelve Months
($ in millions, except per share data) 2016 2015 Change 2016 2015 Change
Revenue $1,570 $1,609 (2%) $6,793 $6,644 2%
Operating Income $161 $206 (22%) $725 $863 (16%)
Operating Income as a % of Revenue 10.2% 12.8%  (260) BPS 10.7% 13.0%  (230) BPS
Net Income $108 $138 (22%) $470 $789 (40%)
Net Income as a % of Revenue 6.9% 8.6%  (170) BPS 6.9% 11.9%  (500) BPS
Earnings Per Share (Fully Diluted) $0.89 $1.01 (12%) $3.70 $5.66 (35%)
Adjusted Earnings Per Share (Fully Diluted)* $0.89 $0.95 (6%) $4.56 $3.92 16%
Fully Diluted Weighted Avg Share Count 121.1 137.1 127.0 139.4

 

Revenue

 

Spirit’s fourth quarter 2016 revenue was $1.6 billion, down by two percent compared to the same period of 2015, primarily driven by lower production deliveries on the Boeing 747 and 777 programs, partially offset by higher activity on non-recurring programs. Revenue for the full year increased two percent to $6.8 billion, primarily due to higher production deliveries on the Airbus A350 XWB and Boeing 767 programs, partially offset by lower revenue recognized due to the impact of pricing terms on the Boeing 787 program and lower production deliveries on the Boeing 747 program.

 

“I am proud of the way the Spirit team executed in 2016. We overcame several challenges and operationally did better than 2015. We delivered a record 1,583 shipsets compared to 1,457 shipsets in the prior year. The number includes 127 787s, 96 777s, 500 737s, 69 A350s, and 574 A320s,” Gentile added.

 

Spirit’s backlog at the end of the fourth quarter of 2016 was approximately $47 billion, with work packages on all commercial platforms in the Boeing and Airbus backlog.

 

Earnings

 

Operating income for the fourth quarter of 2016 was $161 million, compared to $206 million in the same period of 2015, primarily due to one-time incentive payments received in the fourth quarter of 2015. Operating income for the full year was $725 million, compared to $863 millionin 2015, with the decrease primarily resulting from forward loss charges recognized during the second quarter of 2016. Fourth quarter reported EPS was $0.89, compared to $1.01 EPS (or $0.95 adjusted EPS* excluding the impact of Deferred Tax Asset Valuation Allowance) in the same period of 2015. Full-year EPS was $3.70 (or $4.56 adjusted EPS* excluding the impact of certain one-time items), compared to $5.66EPS (or $3.92 adjusted EPS* excluding the impact of Deferred Tax Asset Valuation Allowance) in 2015.

 

“In the fourth quarter, our operations in Kinston, North Carolina, were impacted by the aftermath of Hurricane Matthew resulting in higher abnormal operating costs of $12.1 million, equivalent to approximately $0.07 of EPS. We are submitting appropriate claims with our insurers,” Gentile said.

 

Cash

 

Free cash flow* in the fourth quarter of 2016 was $45 million, compared to $177 million (or adjusted free cash flow* of $131 million, adjusted to remove the impact of the 787 interim pricing agreement) in the same quarter last year. Full-year free cash flow* was $463 million, compared to$930 million in 2015. Full-year adjusted free cash flow* (adjusted to remove the impact of the 787 interim pricing agreement) was $420 millionin 2016, compared to $738 million in 2015.

 

Cash balance at the end of the year was $698 million, reflecting the purchase of 14.2 million common shares for $650 million during the year. The company’s $650 million revolving credit facility remained undrawn at the end of the year.

 

“Despite no share repurchases in the fourth quarter due to the uncertainty from the presidential election and our limited trading window, we remain committed to a balanced and disciplined approach to capital deployment. We have our entire authorization of up to $600 million available as we enter 2017,” Gentile commented.

 

Table 2.  Cash Flow and Liquidity (unaudited)
4th Quarter Twelve Months
($ in millions) 2016 2015 2016 2015
Cash Flow from Operations $142 $320 $717 $1,290
Purchases of Property, Plant & Equipment ($97) ($143) ($254) ($360)
Free Cash Flow* $45 $177 $463 $930
Adjusted Free Cash Flow* $45 $131 $420 $738
December 31, December 31,
Liquidity 2016 2015
Cash $698 $957
Total Debt $1,087 $1,120

 

 

Financial Outlook and Risk to Future Financial Results

 

“A major focus in 2017 will revolve around executing our supply chain strategy, improving our productivity, digitizing our shop floor, and meeting our customers’ requirements for production rate changes,” Gentile concluded.

 

Table 3.  Financial Outlook Issued February 1, 2017 2017 Guidance
Revenue $6.8 – $6.9 billion
Earnings Per Share (Fully Diluted) $4.60 – $4.85
Effective Tax Rate 31 – 32%
Free Cash Flow* $450 – $500 million

 

Risks to our financial guidance are described more fully in the Cautionary Statement Regarding Forward-Looking Statements in this release and in the “Risk Factors” sections of our filings with the Securities and Exchange Commission.

 

Segment Results

 

Fuselage Systems

 

Fuselage Systems segment revenue in the fourth quarter of 2016 was $819 million, which was slightly lower than the same period last year, due to lower production deliveries on the Boeing 747 and 777 programs, partially offset by higher production deliveries on the Boeing 737 and 767 programs and higher activity on non-recurring programs. Operating margin for the fourth quarter of 2016 was 15.6 percent as compared to 17.5 percent during the same period of 2015. In the fourth quarter of 2016, the company recorded pretax ($6.8) million of unfavorable cumulative catch-up adjustments on mature programs and net forward losses of ($0.4) million.

 

Propulsion Systems

 

Propulsion Systems segment revenue in the fourth quarter of 2016 decreased seven percent from the same period last year to $404 million, driven by lower production deliveries on the Boeing 747 and 777 programs and lower net revenues recognized on the Boeing 787 program in accordance with pricing terms, partially offset by higher revenue recognized on certain non-recurring Boeing programs. Operating margin for the fourth quarter of 2016 was 18.6 percent as compared to 22.8 percent during the same period of 2015. Year-over-year change was primarily driven by one-time incentive payments received in the fourth quarter of 2015. In the fourth quarter of 2016, the segment recorded pretax $3.0 million of favorable cumulative catch-up adjustments on mature programs and $4.1 million of favorable changes in estimates on forward loss programs.

 

Wing Systems

 

Wing Systems segment revenue in the fourth quarter of 2016 slightly decreased by one percent from the same period last year to $347 million, primarily due to lower production deliveries on the Boeing 747 program, lower wing-related activity on the Boeing 777 program and lower non-recurring revenue on certain Boeing programs, partially offset by higher net revenues recognized on the Boeing 787 due to model mix. Operating margin for the fourth quarter of 2016 was 14.1 percent as compared to 10.7 percent during the same period of 2015. Year-over-year change was primarily driven by charges recognized in the fourth quarter of 2015. In the fourth quarter of 2016, the segment recorded pretax $7.6 million of favorable cumulative catch-up adjustments on mature programs.

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