BE Aerospace Q1 2010 Earnings Call Transcript

BE Aerospace Q1 2010 Earnings Call Transcript
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BE Aerospace (BEAV)

Q1 2010 Earnings Call

April 27, 2010 9:00 am ET

Executives

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

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

Michael Baughan - President and Chief Operating Officer

Greg Powell - Vice President of Investor Relations

Analysts

J. B. Groh - D.A. Davidson & Co.

Gautam Khanna - Cowen and Company, LLC

Robert Spingarn - Crédit Suisse First Boston, Inc.

Eric Hugel - Stephens Inc.

Howard Rubel - Jefferies & Company, Inc.

Carter Leake - Davenport & Company, LLC

Robert Stallard - Macquarie Research

Patrick McCarthy - FBR Capital Markets & Co.

Peter Arment - Broadpoint AmTech, Inc.

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

David Strauss - UBS Investment Bank

Presentation

Operator

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Good morning. My name is Gwen, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the B/E Aerospace First Quarter 2010 Earnings Conference Call. [Operator Instructions] 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, Gwen. Good morning, and thank you for joining us this morning. Today, we are here to discuss our financial results for the first quarter ending March 31, 2010. By now, you should've received a copy of the news release we issued earlier this morning. If you haven't received it, you'll find a copy on our website.

We will begin 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 www.beaerospace.com. 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 Mike Baughan, our President and Chief Operating Officer; and Tom McCaffrey, Senior Vice President and Chief Financial Officer.

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, the operator will provide instructions. As in the past, please limit your questions to no more than two at a time so we could get to everyone.

Now, I will turn the call over to Amin Khoury.

Amin Khoury

Thank you, Greg and good morning, everyone. I'm pleased to report that our first quarter operating results were above our earlier expectations. Our book-to-bill ratio was greater than one and our cash flow were strong. It was a pretty good quarter in a difficult but improving environment.

On a sequential quarterly basis, our first quarter operating margin expanded by about 50 basis points on a 3% decline in revenues. Importantly, orders for Consumables and Commercial Aircraft spares have increased substantially from the trough levels of 2009.

As a result of improving global air traffic and airline yields, and better than expected performance by the company during the first quarter, we are raising our 2010 full year earnings per share guidance by $0.05 per diluted share to approximately $1.45 per diluted share. This morning, I'd first like to discuss the current macroeconomic environment, then we'll review our first quarter financial and operating results. And finally, we'll discuss our updated guidance for the remainder of 2010 and our promising outlook for 2011.

Let's first discuss the current market environment. Essentially, every macroeconomic metric, which we follow, is improving. As the economy has begun to improve late in 2009 and into 2010, the market environment for our global airline customers has also gotten better. For the first two months of the year, international traffic has improved 8% compared to a year ago, which was the bottom of the cycle. Asia and the Middle East has experienced strong traffic growth of 10% and 25% respectively, and U.S. and European international passenger traffic is up about 3.5% year-to-date. Meanwhile, ATA reported that March revenue was up 15.4%, a 1.4% increase in volume and an 11.4% increase in price. Clearly, premium passenger demand is recovering and has improved from the trough levels reached in March 2009 by about 10%, but is still down about 16% from the 2008 peak.

The airline industry has done a good job of keeping capacity in check, which is bolstering their efforts to raise fares and increase fees. This has resulted in increased airline yields. From March, a number of U.S. airlines reported strong increases in passenger revenue per available seat filed, up between 15% and 22%. IATA now expects 2010 international passenger demand to grow by about 5.5% and cargo demand to grow by about 12%, and is now forecasting the industry to show an operating profit of about $6 billion for 2010. Even after taking into account about $2 billion in losses primarily incurred by European airlines as a result of the Icelandic volcano eruption. We expect demand for our products to continue to improve in 2010, consistent with the expected higher level of global air traffic.

Let's turn our attention to the first quarter results. We are pleased to report results for the first quarter of 2010 above our guidance, primarily due to an improved demand environment for Commercial Aircraft segments spares and consumables.

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