Spirit AeroSystems Holdings, Inc. Reports Third Quarter 2014 Financial Results; Revenues of $1.7 billion and EPS of $1.20; Raises 2014 Guidance

WICHITA, Kan., Oct. 31, 2014 /PRNewswire/ -- Spirit AeroSystems Holdings, Inc. [NYSE: SPR] reported third quarter 2014 financial results reflecting continued healthy demand for large commercial aircraft and strong mature program operating performance. Spirit's third quarter 2014 revenues were $1.7 billion, up from $1.5 billion for the same period in 2013 on higher deliveries.

Operating income was $216 million, up from $51 million for the same period in 2013. Net income for the quarter was $168 million, or $1.20 per fully diluted share.

"It has been a good quarter for the industry as aerospace has seen a number of significant milestones. Boeing announced an increase in the 737 production rate to an all-time high of 52 per month beginning in 2018 following a previous announcement of 47 per month in 2017," said President and Chief Executive Officer Larry Lawson. 

"Another significant highlight this quarter was Airbus' achievement of two important milestones. These milestones include type certification of the Airbus A350 by EASA and first flight of the Airbus A320neo. We would like to congratulate Airbus on these accomplishments and we are proud to be on the team," Lawson continued.

"We are maximizing our internal capabilities more effectively. This quarter we continued to consolidate our global engineering resources to have better workforce stability, improved domain expertise and lower cost. We're in the final stages of centralizing our procurement activities which is already yielding improvement in performance and cost," Lawson continued.

Spirit's backlog grew to a new record of approximately $44 billion at the end of the third quarter compared to $41 billion at the end of the second quarter.  

Spirit updated its contract profitability estimates during the third quarter of 2014 due to improved performance and reduced risks, resulting in net pre-tax $33 million, or $0.16 per share^#, favorable cumulative catch-up adjustments on mature programs.

In comparison, the third quarter of 2013 included net pre-tax charges of ($124) million and net pre-tax favorable cumulative catch-up adjustments of $28 million.

Free cash flow was a $75 million* source of cash for the third quarter of 2014, compared to a $128 million* source of cash for the third quarter of 2013 reflecting higher cash tax payments, partially offset by improved operational performance and lower capital expenditures. Year-to-date free cash flow was a $194 million* source of cash compared to a $7 million* source of cash in 2013. (Table 2)

Cash balances at the end of the quarter were $453 million and debt balances were $1,157 million. At the end of the third quarter of 2014, the company's $650 million credit facility remained undrawn. The company's credit rating remained unchanged at the end of the third quarter of 2014.

On August 7, 2014, Spirit, Onex and certain current and former members of Spirit management entered into an underwriting agreement for the sale by such stockholders of 8,577,155 shares of Spirit's Class A common stock in a secondary public offering. Following the completion of the offering, which closed on August 13, 2014, Onex no longer owned any shares of the company. 

Financial Outlook and Risk to Future Financial Results

Spirit revenue guidance for the full-year 2014 is expected to be $6.8 to $6.9 billion based on Boeing's 2014 projected deliveries of 715 to 725 aircraft; projected Airbus deliveries in 2014 at a similar level to those in 2013; internal Spirit forecasts for other customer production activities; and expected non-production revenues.

Fully diluted earnings per share guidance for 2014 is increased and is expected to be $3.35 to $3.45 per share and does not include the impact of the year-to-date and potential future adjustments to the deferred tax asset valuation allowance.

Free cash flow guidance is increased by $25 million and is now expected to be approximately $275 million* from previous guidance of $250 million*. 

The effective tax rate for 2014 is forecasted to be approximately 30.0 to 31.0 percent, including the expected benefit of the U.S. Research Tax Credit for 2014, and excluding any potential adjustment to the valuation allowance recorded against the U.S. net deferred tax assets at the end of 2013. (Table 3)

Risks to our financial guidance are described in the Cautionary Statement Regarding Forward-Looking Statements contained in this release and in the "Risk Factors" section of our filings with the Securities and Exchange Commission.

Segment Results

Fuselage Systems

Fuselage Systems segment revenues in the third quarter of 2014 were $804 million, up from $710 million for the same period last year due to higher production deliveries. Operating margin for the third quarter of 2014 was 17.7 percent as compared to 4.2^{(1) (2)} percent during the same period of 2013. In the third quarter of 2014 the segment recorded pre-tax $10 million favorable cumulative catch-up adjustments on mature programs. In comparison, the segment realized pre-tax forward loss charges of ($117) million and pre-tax $20 million favorable cumulative catch-up adjustments in the third quarter of 2013.

Propulsion Systems

Propulsion Systems segment revenues in the third quarter of 2014 rose to $442 million, from $389 million for the same period last year on higher production deliveries. Operating margin for the third quarter of 2014 was 18.5 percent as compared to 18.8^{(1) (2)} percent in the third quarter of 2013. In the third quarter of 2014 the segment realized pre-tax $8 million favorable cumulative catch-up adjustments on mature programs. In comparison, the segment reported a pre-tax forward loss charge of ($1) million and pre-tax 4 million favorable cumulative catch-up adjustments in the third quarter of 2013.

Wing Systems

Wing Systems segment revenues in the third quarter of 2014 increased to $446 million, from $398 million for the same period last year on higher production deliveries. Operating margin for the third quarter of 2014 was 14.1 percent as compared to 9.5 ^{(1) (2)} percent during the same period of 2013. In the third quarter of 2014 the segment recorded pre-tax $15 million favorable cumulative catch-up adjustments on mature programs. In comparison, in the third quarter of 2013 the segment recorded a pre-tax forward loss charge of ($6) million and pre-tax $4 million favorable cumulative catch-up adjustments.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains "forward-looking statements" that may involve many risks and uncertainties. Forward-looking statements reflect our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "anticipate," "intend," "estimate," "believe," "project," "continue," "plan," "forecast," or other similar words, or the negative thereof, unless the context requires otherwise. These statements reflect management's current views with respect to future events and are subject to risks and uncertainties, both known and unknown. Our actual results may vary materially from those anticipated in forward-looking statements. We caution investors not to place undue reliance on any forward-looking statements. Important factors that could cause actual results to differ materially from those reflected in such forward-looking statements and that should be considered in evaluating our outlook include, but are not limited to, the following: 1) our ability to continue to grow our business and execute our growth strategy; 2) our ability to perform our obligations and manage costs related to our new and maturing programs; 3) margin pressures and the potential for additional forward losses on new and maturing programs; 4) our ability to accommodate, and the cost of accommodating, announced increases in the build rates of certain aircraft; 5) the effect on business and commercial aircraft demand and build rates of changing customer preferences, global economic conditions, and conflicts in the Middle East or Asia; 6) the success and timely execution of key milestones, such as certification and first delivery of Airbus' A350 XWB aircraft, receipt of necessary regulatory approvals and customer adherence to their announced schedules; 7) our ability to successfully negotiate future pricing under our agreements with Boeing, Airbus and our other customers; 8) our ability to enter into profitable supply arrangements with additional customers; 9) the ability of all parties to satisfy their performance requirements under existing supply contracts with our customers and the risk of nonpayment by such customers; 10) our ability to secure work for replacement programs; 11) any adverse impact on Boeing's and Airbus' production of aircraft; 12) any adverse impact on the demand for air travel or our operations from the outbreak of diseases or epidemic or pandemic outbreaks; 13) returns on pension plan assets and the impact of future discount rate changes on pension obligations; 14) our ability to borrow additional funds or refinance debt; 15) our ability to sell all or any portion of our Oklahoma sites on terms acceptable to us; 16) competition from commercial aerospace original equipment manufacturers and other aerostructures suppliers; 17) the effect of governmental laws, such as U.S. export control laws and U.S. and foreign anti-bribery laws such as the Foreign Corrupt Practices Act and United Kingdom Bribery Act, and environmental laws and agency regulations, both in the U.S. and abroad; 18) the cost and availability of raw materials and purchased components; 19) any reduction in our credit ratings; 20) our ability to recruit and retain highly skilled employees and our relationships with the unions representing many of our employees; 21) spending by the U.S. and other governments on defense; 22) the possibility that our cash flows and borrowing facilities may not be adequate; 23) our exposure under our existing senior secured revolving credit facility to higher interest payments should interest rates increase substantially; 24) the effectiveness of our interest rate and hedging programs; 25) the effectiveness of our internal control over financial reporting; 26) the outcome or impact of ongoing or future litigation, claims and regulatory actions; and 27) our exposure to potential product liability and warranty claims. These factors are not exhaustive and it is not possible for us to predict all factors that could cause actual results to differ materially from those reflected in our forward-looking statements. These factors speak only as of the date hereof, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. As with any projection or forecast, these statements are inherently susceptible to uncertainty and changes in circumstances. Except to the extent required by law, we undertake no obligation to, and expressly disclaim any obligation to, publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Appendix

Management believes the non-GAAP (Generally Accepted Accounting Principles) measures (indicated by *) used in this report provide investors with important perspectives into the company's ongoing business performance. The company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measure. Other companies may define the measure differently.

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SOURCE Spirit AeroSystems Holdings, Inc.

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