Spirit AeroSystems Holdings Inc Management Discusses Q2 2012 Results - Earnings Call Transcript

Spirit AeroSystems Holdings Inc (SPR)

Q2 2012 Earnings Call

August 02, 2012 11:00 am ET

Executives

Coleen Tabor

Jeffrey L. Turner - Chief Executive Officer, President, Director and Member of Government Security Committee

Philip D. Anderson - Chief Financial Officer and Senior Vice President

Analysts

Greg Konrad - Jefferies & Company, Inc., Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

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

David E. Strauss - UBS Investment Bank, Research Division

Mayur Manmohansingh - Barclays Capital, Research Division

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

Joseph Nadol - JP Morgan Chase & Co, Research Division

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Noah Poponak - Goldman Sachs Group Inc., Research Division

George D. Shapiro - Access 3:42, LLC

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Myles A. Walton - Deutsche Bank AG, Research Division

Robert Stallard - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Spirit AeroSystems Holdings Inc. Second Quarter 2012 Earnings Conference Call. My name is Sandra, and I'll be your coordinator today. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the presentation over to Ms. Coleen Tabor, Director of Investor Relations. Please proceed.

Coleen Tabor

Thank you, and good morning. Welcome to Spirit's Second Quarter 2012 Earnings Call. I'm Coleen Tabor, and with me today are Jeff Turner, Spirit's President and Chief Executive Officer; and Phil Anderson, Spirit's Senior Vice President and Chief Financial Officer.

After brief comments by Jeff and Phil regarding our performance and outlook, we'll be glad to take your questions. In order to allow everyone to participate in the question-and-answer segment, we do ask that you limit yourself to one question.

Before we begin, I need to remind you that any projections or goals we may include in our discussion today are likely to involve risks, which are detailed in our news release, in our SEC filings and in the forward-looking statement at the end of this web presentation. And as a reminder, you can follow today's broadcast and slide presentation on our website at spiritaero.com.

With that, I'd like to turn the call over to our Chief Executive Officer, Jeff Turner.

Jeffrey L. Turner

Thank you, Coleen, and good morning. Let me welcome you to Spirit's second quarter earnings call. I'll begin with a look at our business and related performance, then Phil will review the financial results. After that, we'll be glad to answer your questions.

In the second quarter, our core programs demonstrated solid operating performance as we recovered from the disruption from the severe weather in April at our Wichita, Kansas facility and increased volumes by 12% for large commercial airplanes.

Reflecting on what our team and partners accomplished in the second quarter, I continue to be extremely proud of how we supported our customers by delivering both product and support in a timely manner. It is a testament to the team we have here at Spirit, as well as our unions, our customers, suppliers and our government and community partners.

As the OEM order books demonstrate, the large commercial aircraft market continues to be strong as airlines replace less fuel-efficient airplanes and gain operational performance by growing their fleets. This growth trend is extremely positive for Spirit as our customers increased production rates to meet the demand, translating to our backlog of over $32 billion for our core products and development programs transitioning to production.

While the market is strong, we remain watchful of the global economic environment. Thus, we are closely managing our capital spend to support these increasing demands for our products.

Now let's talk about some of the specific accomplishments across the business during the quarter, beginning on Slide 3.

Fuselage Systems delivered strong operating margins of 15% on $627 million in revenue during the second quarter as we recovered the deliveries lost during the severe weather within the quarter and volumes across our core programs increased.

During the quarter, the Fuselage team continued to make progress on the A350 program in both our North Carolina composite fuselage facility and our Saint-Nazaire assembly facility. The Fuselage segment 737 high-rate production line surged to recover lost deliveries, delivering its 4,100th ship set of the Next Generation fuselage in the quarter.

Fuselage team also continued production on the 747-8 program by delivering the 52nd fuselage. The 787 team continued to support our customer by increasing deliveries in the quarter to 11, including the forward [ph] fuselage #75.

We continue to see progress as the joint Boeing and Spirit teams remained focused on identifying and implementing cost improvements across the 787 program in value engineering, supply chain architecture and production flow.

While we are still early in the planning stages for the 737 MAX, we are pleased with the evolution of this derivative product and the plan to use our Spirit Exact process to smoothly transition the efficient, high-quality NG production line to the MAX.

On Slide 4, you see the Propulsion team delivered strong operating performance with margins of 16% on $351 million in revenue as we recovered the deliveries lost during the severe weather within the quarter. The volumes across the core programs increased.

The Propulsion team also recovered from lost deliveries by surging rates to deliver the 4,100th Next Generation 737 engine pylon sets and thrust reversers in the quarter. The segment's 787 team also supported our customer by delivering engine pylons from unit #76 in the quarter.

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