Heroux-Devtek Inc. (HRX)
F4Q10 (Qtr End 03/31/10) Earnings Call Transcript
May 28, 2010 10:00 am ET
Gilles Labbé – President and CEO
Réal Bélanger – EVP & CFO
Cameron Doerksen – Versant Partners
David Newman – National Bank Financial
Benoit Poirier – Desjardins Securities
Dana Merber – GMP Securities
Tim James – TD Newcrest
Ben Cherniavsky – Raymond James
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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Héroux-Devtek Inc. fourth quarter results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (Operator instructions)
Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded today, Friday, May, 28
, 2010, at 10:00 AM Eastern time.
I will now turn the conference call over to Mr. Gilles Labbé, President and Chief Executive Officer and Mr. Réal Bélanger, Chief Financial Officer of Héroux-Devtek. Mr. Labbé, please go ahead.
Good morning, and welcome to Héroux-Devtek conference call for the fourth quarter and fiscal year ended March 31
, 2010. With me is Réal Bélanger, our Executive Vice President and Chief Financial Officer. [Foreign language]
Our press release was issued this morning and can be found along with our unaudited consolidated financial statement and MD&A on our website at www.herouxdevtek.com.
Despite a year of lingering recession, Héroux-Devtek had a solid performance in fiscal 2010. Sales were slightly down to $320 million, essentially due to lower industrial product sales and currency impact. The military aerospace market remains solid with a sales increase of 8.6%. This was offset by a 12.3% sales decrease to the commercial aerospace market as a result of order push-out in some markets.
Net earning were $16 million, or $0.52 per share versus $0.67 last year on a fully diluted basis. However, our balance sheet remains very solid and we ended the year with over $46 million in cash. If you remember, after Q1 due to push-out and customer delaying some orders, we had quite an increase in inventory and receivable and we told you that we will work on that all year long and I am happy to see that our management team has been doing a good job reducing inventory and receivable at year-end and that’s why we end up with $46 million in cash versus last year an amount of $39 million. So—
In fiscal 2010, we reaffirmed our market leadership by winning new contracts on strategic programs. For example, we gained further exposure to the JSF program through two new contracts expected to generate more than $60 million in additional revenues through calendar 2017.
We also gained additional exposure to the growing CH-47 Chinook helicopter by signing an MOU with Boeing fabricated landing gear for all Chinooks to be delivered outside the U.S. over a four year period, beginning early in fiscal 2012. Intellectual property license to service the worldwide fleet with aftermarket parts and services is also being considered.
Another important event took place shortly after fiscal year-end. On April 28
, we completed the acquisition of Eagle Tool & Machine, and its subsidiary E-2 Precision Products, two manufactures of precision machine components mainly for the military aerospace market located in Ohio. This strategy acquisition further strengthen our customer relationship as we now have manufacturing facilities closer to our main Landing Gear customers. Eagle Tool also broadened our product portfolio. This acquisition adds $125 million to our funded backlog. It has annual sales of approximately $40 million and we believe it will be accretive to EPS by up to 10% in the first year following the acquisition.
If we take a brief look at our main markets, military aerospace remains solid. Proposed funding for the upcoming U.S. 2011 fiscal year account for a 3.4 increase in the Department of Defense base budget over the sums authorized for fiscal 2010. There is also a 7.7% proposed funding increase for procurement to use – to U.S. $113 billion [ph] in fiscal 2011. However, we must remain prudent over the mid-term as the U.S. administration must address the deficit and may reduce subsequent funding.
The JSF program continue to ramp up and although the proposed budget calls for a moderation in the ramp up pace over the near term, the U.S. administration remains firmly committed to the program. In any event, Héroux-Devtek is well positioned in the military aerospace market given its diversified program portfolio and a sound balance between new components and assemblies as well as aftermarket services.
Condition in commercial aerospace market are improving, first, in the large commercial aircraft segment, Boeing and Airbus have confirmed that Canada 2010 deliveries will be near 2009 levels. More importantly, both recently announced production rate increase for 2011 on platforms such as the B 777, B 747, and A320. In addition, first delivery of the Boeing 787 are scheduled for late 2010. New orders for Boeing and Airbus reach a combined total of approximately 200 aircraft in the first four months of 2010, a figure roughly three times greater than for the same period in 2009.