BE Aerospace Management Discusses Q2 2012 Results - Earnings Call Transcript

BE Aerospace (BEAV)

Q2 2012 Earnings Call

July 24, 2012 9:00 am ET

Executives

Greg Powell - Vice President of Investor Relations

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

T. P. McCaffrey - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Werner Lieberherr - President and Chief Operating Officer

Analysts

Noah Poponak - Goldman Sachs Group Inc., Research Division

Julie Yates - Crédit Suisse AG, Research Division

R. Rama Bondada - RBC Capital Markets, LLC, Research Division

Gautam Khanna - Cowen and Company, LLC, Research Division

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Myles A. Walton - Deutsche Bank AG, Research Division

Yair Reiner - Oppenheimer & Co. Inc., Research Division

Kevin Ciabattoni - KeyBanc Capital Markets Inc., Research Division

F. Carter Leake - BB&T Capital Markets, Research Division

J. B. Groh - D.A. Davidson & Co., Research Division

Darryl Genovesi - UBS Investment Bank, Research Division

Presentation

Operator

Good morning. My name is Jessica Morgan, and I'll be your conference facilitator today. At this time, I'd like to welcome everyone to the B/E Aerospace Second Quarter 2012 Earnings Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded this day, July 24, 2012. Thank you.

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, Jessica. Good morning, and thank you for joining us this morning. Today, we are here to discuss our financial results for the second quarter ended June 30, 2012. By now, you should have received a copy of the news release we issued earlier today. If you haven't received it, you'll find a copy on our website.

We will begin this morning with remarks from Amin Khoury, our Founder, Chairman and Chief Executive Officer; and then we will take your questions.

For today's call, we prepared a few slides to help you follow on with our discussion. You can find our presentation on the Investor Relations page of the B/E Aerospace website at beaerospace.com. In addition, copies of the slides will be posted to our website for your review after the call.

Joining us this morning for the call will be Werner Lieberherr, our President and Chief Operating Officer; and Tom McCaffrey, Senior Vice President and our CFO.

As always, in our prepared remarks and 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. After we present today, we will address your questions following our prepared remarks. [Operator Instructions]

And now I will turn the call over to Amin Khoury.

Amin J. Khoury

Thank you, Greg, and good morning, everyone. We are very pleased with our record second quarter results, which were announced earlier this morning and which were above earlier expectations. Our strong revenue growth is being driven primarily by the robust new aircraft delivery cycle and substantial market share gains, which are offsetting weaker aftermarket demand.

Approximately 65% of second quarter bookings were driven by demand for products for new-buy aircraft. So our historical 50%-50% OE aftermarket split has become strongly skewed to the OE side of the ledger both because of the strong new aircraft delivery cycle and also because of a weaker aftermarket environment.

Over the past 3 years, the company has been booking orders well in excess of the market growth rate. And we are now recording significant market share gains while delivering at a rate well above the market growth rate. It is our successful R&D investments which are driving the significant market share gains. And with robust demand from the strong new aircraft build cycle, we are experiencing strong revenue growth. In addition, essentially our entire $4.4 billion SFE backlog represents additional market share gains. And as deliveries from our SFE backlog ramp up, we expect to see our revenue generation per new aircraft continue to increase.

Our record second quarter results included an operating margin of 18.5%, excluding items, an increase of 100 basis points as compared with the prior year period. The substantial margin expansion was driven by the 20% revenue growth in our higher-margin distribution business and by margin improvements in our Commercial Aircraft and Business Jet segments, which more than offset the margin drag from recent Consumables Management segment acquisitions and related integration costs.

During the quarter, we agreed to acquire Interturbine, a leading provider of material management logistics services to global airlines and maintenance, repair and overhaul providers. Interturbine is a one-stop source reducing aircraft downtime for airlines. Over 60% of Interturbine's business is generated on an urgent Aircraft-on-Ground basis, requiring response within 4 to 24 hours. The acquisition, when closed, will add about 500,000 SKUs, doubling our Consumables product portfolio and, more importantly, positions our company to offer a comprehensive range of products and services on a single-source basis to our customers globally.

A bit on the financing front. Two weeks ago, we opportunistically took advantage of historically low interest rates and issued $800 million of senior unsecured notes priced to yield 4.9%. We issued those notes as an add-on to our existing $500 million issue, a 5.25% senior unsecured notes due March 2022. At the same time, we launched a tender offer to acquire any and all $100 million issue of 8.5% senior unsecured notes due July 2018. We intend to use excess funds remaining after the tender for general corporate purposes, which may include acquisitions. Exclusive of a one-time charge of approximately $0.55 per share for debt prepayment costs, these financing transactions are expected to be neutral to slightly positive to 2012 earnings per share and to be approximately $0.07 per share accretive to 2013 earnings per share.

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