Spirit AeroSystems Holdings, Inc. Reports First Quarter 2017 Financial Results; Meets Commitments; Reaffirms 2017 Guidance

WICHITA, Kan., May 3, 2017 /PRNewswire/ --

First Quarter 2017 Results and Highlights

    --  Revenue of $1.7 billion on record deliveries
    --  Earnings per share (EPS) of $1.17
    --  Cash from Operations of $112 million, up 19% y/y; Free cash flow* of $71
        million, up 65% y/y
    --  Repurchased 1.4 million shares for $81.5 million
    --  Paid first-ever quarterly cash dividends of $0.10 per share, or $12
        million

Spirit AeroSystems Holdings, Inc. [NYSE: SPR] reported first quarter 2017 financial results driven by strong operating performance.


    Table 1.  Summary Financial Results (unaudited)
    ----------------------------------------------

                                           1st Quarter
                                           -----------

    ($ in millions, except per
     share data)                          2017         2016      Change
    --------------------------            ----         ----      ------


    Revenue                             $1,694       $1,682          1%

    Operating Income                      $214         $267       (20%)

    Operating Income as a % of
     Revenue                             12.6%       15.9%  (330) BPS

    Net Income                            $142         $172       (17%)

    Net Income as a % of Revenue          8.4%       10.2%  (180) BPS

    Earnings Per Share (Fully
     Diluted)                            $1.17        $1.29        (9%)

    Fully Diluted Weighted Avg
     Share Count                         120.7        132.7


    Total Change in Estimate                $5          $47       ($42)

    EPS Impact of Change in
     Estimate**                          $0.03        $0.22     ($0.19)
    -----------------------              -----        -----      ------

    **Diluted per share
     based upon statutory
     rates

"We are on track to ramp up the production rate on the Boeing 737 program from 42 airplanes per month to 47 per month before the end of the second quarter and increase the A350 production rate to 10 per month by 2018," Spirit President and CEO Tom Gentile said.

Revenue
Spirit's first quarter 2017 revenue was $1.7 billion, up by 1 percent compared to the same period of 2016, primarily driven by higher production deliveries on the Airbus A350 XWB, partially offset by lower production deliveries on the Boeing 777 program. (Table 1)

Spirit's backlog at the end of the first quarter of 2017 was approximately $46 billion, with work packages on all commercial platforms in the Boeing and Airbus backlog.

Earnings
Operating income for the first quarter of 2017 was $214 million, compared to $267 million in the same period of 2016, primarily due to higher favorable changes in estimates recognized during the first quarter of 2016, which were $42 million higher when compared to those recognized in the current period. First quarter reported EPS was $1.17, compared to $1.29 EPS in the same period of 2016. The EPS impact from favorable changes in estimates was $0.19 per share more in the first quarter of 2016 than in the current period, based upon the statutory tax rate. (Table 1)

Cash
Adjusted free cash flow* in the first quarter of 2017 was $71 million, compared to $0 million (adjusted to remove the impact of the 787 interim pricing agreement) in the same quarter last year. (Table 2)

Cash balance at the end of the quarter was $672 million. The company's $650 million revolving credit facility remained undrawn at the end of the quarter.

"In the first quarter we executed on our current share repurchase authorization of up to $600 million by deploying $81.5 million toward the repurchase of 1.4 million shares. Also, after paying our first quarterly dividend of $12 million in January, our board of directors declared another quarterly cash dividend of $0.10 per share," Gentile added.


    Table 2.  Cash Flow and Liquidity (unaudited)

                                                1st Quarter
                                                -----------

    ($ in millions)                           2017              2016
    --------------                            ----              ----

    Cash from Operations                      $112               $94

    Purchases of Property, Plant &
     Equipment                               ($41)            ($51)

    Free Cash Flow*                            $71               $43

    Adjusted Free Cash Flow*                   $71                $0


                                        March 30,     December 31,

    Liquidity                                 2017              2016
                                              ----              ----

    Cash                                      $672              $698

    Total Debt                              $1,091            $1,087

"In addition, we started expanding our fabrication business and initiating work packages in order to leverage our internal capabilities, open capacity, and cost structure. In line with this new strategy, we made major investments in our McAlester, Oklahoma facility, and added three- and four-axis machines to establish a Machining Center-of-Excellence at that site," Gentile concluded.

Financial Outlook and Risk to Future Financial Results



    Table 3.  Financial Outlook
     Unchanged May 3, 2017      2017 Guidance
    --------------------------- -------------


    Revenue                               $6.8 - $6.9 billion


    Earnings Per Share (Fully
     Diluted)                                   $4.60 - $4.85


    Effective Tax Rate                               31 - 32%


    Free Cash Flow*                       $450 - $500 million

Risks to our financial guidance are described more fully in the Cautionary Statement Regarding Forward-Looking Statements in this release.

Segment Results
Fuselage Systems
Fuselage Systems segment revenue in the first quarter of 2017 increased by 5 percent from the same period last year to $917 million, primarily due to higher production deliveries on the Airbus A350 XWB and increased defense-related activity, partially offset by lower production deliveries on the Boeing 737 and 777 programs. Operating margin for the first quarter of 2017 decreased to 16.4 percent, compared to 20.3 percent during the same period of 2016, primarily due to increased revenue from lower-margin programs and lower production deliveries on the Boeing 737 and 777 programs. In the first quarter of 2017, the company recorded pretax ($0.2) million of unfavorable cumulative catch-up adjustments and net forward losses of ($5.9) million, primarily on the Airbus A350 XWB program.

Propulsion Systems
Propulsion Systems segment revenue in the first quarter of 2017 decreased 7 percent from the same period last year to $406 million, primarily driven by lower production deliveries on the Boeing 777 program. Operating margin for the first quarter of 2017 was 18.1 percent compared to 22.6 percent during the same period of 2016. Year-over-year change was primarily driven by favorable changes in estimates recognized in the first quarter of 2016 and lower margins recognized on Boeing programs, mainly the 777. In the first quarter of 2017, the segment recorded pretax $1.5 million of favorable cumulative catch-up adjustments on mature programs.

Wing Systems
Wing Systems segment revenue in the first quarter of 2017 increased by 2 percent from the same period last year to $369 million, primarily due to higher production deliveries on the Airbus A350 XWB, as well as higher revenue recognized on the Boeing 787 program which had comparable reductions in revenue within the propulsion segment. These increases to revenue were partially offset by lower production deliveries on the Boeing 747 and 777 programs as well as the impact from foreign currency fluctuations on the Airbus A320 program. Operating margin for the first quarter of 2017 decreased slightly to 15.9 percent, compared to 16.3 percent during the same period of 2016, primarily due to favorable changes in estimates recognized in the first quarter of 2016, partially offset by higher margins recognized on Airbus A350 XWB wing-related activity. In the first quarter of 2017, the segment recorded pretax $8.0 million of favorable cumulative catch-up adjustments primarily on the Airbus A350 XWB program and favorable changes in estimates on forward loss programs of $1.8 million.


    Table 4.  Segment Reporting
     (unaudited)

                                          1st Quarter
                                          -----------

    ($ in millions)                      2017          2016      Change
    --------------                       ----          ----      ------


    Segment Revenue

       Fuselage Systems(1)             $916.9        $875.8        4.7%

       Propulsion Systems               406.3         438.6      (7.4%)

       Wing Systems                     369.0         360.5        2.4%

       All Other(1)                       1.9           6.7
                                          ---           ---

    Total Segment Revenue            $1,694.1      $1,681.6        0.7%


    Segment Earnings from Operations

       Fuselage Systems(1)             $150.4        $177.7     (15.4%)

       Propulsion Systems                73.7          99.1     (25.6%)

       Wing Systems                      58.5          58.8      (0.5%)

       All Other(1)                     (0.1)          1.5
                                         ----           ---

    Total Segment Operating Earnings   $282.5        $337.1     (16.2%)


    Unallocated Expense

    Corporate SG&A                    ($51.9)      ($50.0)     (3.8%)

    Impact of Severe Weather Event     (10.8)            -

    Research & Development              (5.0)        (6.1)      18.0%

    Cost of Sales                       (1.2)       (14.5)      91.7%

    Total Earnings from Operations     $213.6        $266.5     (19.8%)


    Segment Operating Earnings as %
     of Revenue

       Fuselage Systems                 16.4%        20.3%  (390) BPS

       Propulsion Systems               18.1%        22.6%  (450) BPS

       Wing Systems                     15.9%        16.3%   (40) BPS

       All Other                       (5.3%)        22.4%
                                        -----          ----

    Total Segment Operating Earnings
     as % of Revenue                    16.7%        20.0%  (330) BPS


    Total Operating Earnings as % of
     Revenue                            12.6%        15.8%  (320) BPS

    (1)              Includes a
                     reclassification
                     of $2.0
                     million of
                     revenue and
                     $0.4 million
                     of operating
                     income from
                     the Other
                     segment to
                     the Fuselage
                     segment for
                     the three
                     months ended
                     March 31,
                     2016.

* Non-GAAP financial measure, see Appendix for reconciliation

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 "aim," "anticipate," "believe," "could," "continue," "estimate," "expect," "goal," "forecast," "intend," "may," "might," "objective," "plan," "predict," "project," "should," "target," "will," "would," and other similar words, or phrases, 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, including the timing, execution, and profitability of new and maturing programs; 2) our ability to perform our obligations and manage costs related to our new and maturing commercial, business aircraft and military development programs, and the related recurring production; 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 aircraft demand and build rates of changing customer preferences for business aircraft, including the effect of global economic conditions on the business aircraft market and expanding conflicts or political unrest in the Middle East or Asia; 6) customer cancellations or deferrals as a result of global economic uncertainty; 7) the effect of economic conditions in the industries and markets in which we operate in the U.S. and globally and any changes therein, including fluctuations in foreign currency exchange rates; 8) the success and timely execution of key milestones such as receipt of necessary regulatory approvals and customer adherence to their announced schedules; 9) our ability to successfully negotiate future pricing under our supply agreements with Boeing and our other customers; 10) our ability to enter into profitable supply arrangements with additional customers; 11) the ability of all parties to satisfy their performance requirements under existing supply contracts with our two major customers, Boeing and Airbus, and other customers, and the risk of nonpayment by such customers; 12) any adverse impact on Boeing's and Airbus' production of aircraft resulting from cancellations, deferrals, or reduced orders by their customers or from labor disputes or acts of terrorism; 13) any adverse impact on the demand for air travel or our operations from the outbreak of diseases or epidemic or pandemic outbreaks; 14) our ability to avoid or recover from cyber-based or other security attacks, information technology failures, or other disruptions; 15) returns on pension plan assets and the impact of future discount rate changes on pension obligations; 16) our ability to borrow additional funds or refinance debt; 17) competition from commercial aerospace original equipment manufacturers and other aerostructures suppliers; 18) 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 the United Kingdom Bribery Act, and environmental laws and agency regulations, both in the U.S. and abroad; 19) the effect of potential changes in tax law, such as those outlined in recent proposals on U.S. tax reform; 20) any reduction in our credit ratings; 21) our dependence on our suppliers, as well as the cost and availability of raw materials and purchased components; 22) our ability to recruit and retain highly-skilled employees and our relationships with the unions representing many of our employees; 23) spending by the U.S. and other governments on defense; 24) the possibility that our cash flows and borrowing facility may not be adequate for our additional capital needs or for payment of interest on, and principal of, our indebtedness; 25) our exposure under our existing senior revolving credit facility to higher interest payments should interest rates increase substantially; 26) the effectiveness of any interest rate hedging programs; 27) the effectiveness of our internal control over financial reporting; 28) the outcome or impact of ongoing or future litigation, claims, and regulatory actions; and 29) 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.


                 Spirit Shipset Deliveries

             (one shipset equals one aircraft)



                                            1st Quarter
                                            -----------

                                                     2017 2016
                                                     ---- ----

                       B737                           126  130

                       B747                             1    3

                       B767                             6    6

                       B777                            21   26

                       B787                            32   33
                                                      ---  ---

               Total Boeing                           186  198


                A320 Family                           154  147

                   A330/340                            20   16

                       A350                            24   14

                       A380                             4    7
                                                      ---  ---

               Total Airbus                           202  184


     Business/Regional Jets                            22   15
                                                      ---  ---


                      Total                           410  397
                                                      ===  ===


                                        Spirit AeroSystems Holdings, Inc.

                                 Condensed Consolidated Statements of Operations

                                                   (unaudited)


                                                                                    For the Three Months Ended
                                                                                    --------------------------

                                                                    March 30, 2017                    March 31, 2016
                                                                    --------------                    --------------

                                                                                   ($ in millions, except per share
                                                                                                 data)


    Net revenues                                                                        $1,694.1                     $1,681.6

    Operating costs and expenses:

    Cost of sales                                                                        1,412.8                      1,359.0

    Selling, general and
     administrative                                                                         51.9                         50.0

    Impact of severe weather event                                                          10.8                            -

    Research and development                                                                 5.0                          6.1
                                                                                             ---                          ---

                                      Total operating costs and
                                      expenses                                              1,480.5                      1,415.1

                                     Operating income                                         213.6                        266.5

    Interest expense and financing
     fee amortization                                                                      (9.5)                      (11.4)

    Other income (expense), net                                                              1.5                        (2.2)
                                                                                             ---                         ----

                                      Income before income taxes
                                      and equity in net income of
                                      affiliate                                               205.6                        252.9

    Income tax provision                                                                  (64.0)                      (81.9)
                                                                                           -----                        -----

                                      Income before equity in net
                                      income of affiliate                                     141.6                        171.0

    Equity in net income of
     affiliate                                                                               0.1                          0.6
                                                                                             ---                          ---

                                     Net income                                              $141.7                       $171.6



    Earnings per share

    Basic                                                                                  $1.19                        $1.30

    Shares                                                                                 119.5                        131.6


    Diluted                                                                                $1.17                        $1.29

    Shares                                                                                 120.7                        132.7


    Dividends declared per common
     share                                                                                 $0.10                        $0.00


                                                     Spirit AeroSystems Holdings, Inc.

                                                   Condensed Consolidated Balance Sheets

                                                                (unaudited)


                                                     March 30, 2017                         December 31, 2016
                                                     --------------                         -----------------

                                                                 ($ in millions)

    Current assets

    Cash and cash equivalents                                                        $672.2                       $697.7

    Restricted cash                                                                     5.5                            -

    Accounts receivable, net                                                          824.1                        660.5

    Inventory, net                                                                  1,473.0                      1,515.3

    Other current assets                                                               28.8                         36.9
                                                                                       ----                         ----

        Total current assets                                                        3,003.6                      2,910.4

    Property, plant and equipment, net                                              1,986.3                      1,991.6

    Pension assets                                                                    290.9                        282.3

    Other assets                                                                      193.9                        220.9
                                                                                      -----                        -----

        Total assets                                                               $5,474.7                     $5,405.2
                                                                                   ========                     ========

    Current liabilities

    Accounts payable                                                                 $691.6                       $579.7

    Accrued expenses                                                                  212.6                        216.2

    Profit sharing                                                                     20.9                        101.4

    Current portion of long-term debt                                                  26.8                         26.7

    Advance payments, short-term                                                      183.0                        199.3

    Deferred revenue, short-term                                                      320.5                        312.1

    Deferred grant income liability - current                                          19.9                         14.4

    Other current liabilities                                                         131.8                         94.4
                                                                                      -----                         ----

        Total current liabilities                                                   1,607.1                      1,544.2

    Long-term debt                                                                  1,063.9                      1,060.0

    Advance payments, long-term                                                       305.8                        342.0

    Pension/OPEB obligation                                                            42.6                         43.9

    Deferred revenue and other deferred credits                                       131.6                        146.8

    Deferred grant income liability - non-current                                      54.0                         63.4

    Other liabilities                                                                 284.8                        276.1

    Equity

    Preferred stock, par value $0.01, 10,000,000
     shares authorized, no shares issued                                                  -                           -

    Common stock, Class A par value $0.01,
     200,000,000 shares authorized,120,637,294 and
     121,642,556 shares issued and outstanding,
     respectively                                                                       1.2                          1.2

    Common stock, Class B par value $0.01,
     150,000,000 shares authorized, zero shares
     issued and outstanding each period,
     respectively                                                                         -                           -

    Additional paid-in capital                                                      1,082.8                      1,078.9

    Accumulated other comprehensive loss                                            (182.9)                     (186.9)

    Retained earnings                                                               2,243.7                      2,113.9

    Treasury stock, at cost (25,343,469 and
     23,936,092 shares, respectively)                                             (1,160.4)                   (1,078.8)
                                                                                   --------                     --------

        Total stockholders' equity                                                  1,984.4                      1,928.3

    Noncontrolling interest                                                             0.5                          0.5
                                                                                        ---                          ---

        Total equity                                                                1,984.9                      1,928.8
                                                                                    -------                      -------

        Total liabilities and equity                                               $5,474.7                     $5,405.2
                                                                                   ========                     ========


                                                         Spirit AeroSystems Holdings, Inc.

                                                  Condensed Consolidated Statements of Cash Flows

                                                                    (unaudited)


                                                                For the Three Months Ended
                                                                --------------------------

                                                          March 30, 2017                          March 31, 2016
                                                          --------------                          --------------

                                                                     ($ in millions)

    Operating activities

    Net income                                                                           $141.7                     $171.6

    Adjustments to reconcile net income
     to net cash provided by operating
     activities

         Depreciation expense                                                              52.5                       49.4

         Amortization of deferred financing
          fees                                                                              0.8                        1.1

         Accretion of customer supply
          agreement                                                                         2.9                        1.0

         Employee stock compensation expense                                                8.0                        5.3

         Excess tax benefits from share-based
          payment arrangements                                                                -                     (0.3)

         Loss from foreign currency
          transactions                                                                      0.5                        4.6

         Loss on disposition of assets                                                        -                       2.5

         Deferred taxes                                                                    24.5                       24.1

         Pension and other post-retirement
          benefits, net                                                                   (8.7)                       7.0

         Grant liability amortization                                                     (4.1)                     (2.7)

         Equity in net income of affiliate                                                (0.1)                     (0.6)

    Changes in assets and liabilities

         Accounts receivable, net                                                       (163.6)                   (148.6)

         Inventory, net                                                                    46.1                     (50.6)

         Accounts payable and accrued
          liabilities                                                                     113.2                       19.9

         Profit sharing/deferred compensation                                            (80.5)                    (43.1)

         Advance payments                                                                (52.5)                    (40.3)

         Income taxes receivable/payable                                                   39.4                       58.2

         Deferred revenue and other deferred
          credits                                                                         (6.3)                      29.9

         Other                                                                            (2.1)                       5.4

            Net cash provided by operating
             activities                                                                  $111.7                      $93.8
                                                                                         ------                      -----

    Investing activities

         Purchase of property, plant and
          equipment                                                                      (40.6)                    (50.4)

            Net cash used in investing activities                                       ($40.6)                   ($50.4)
                                                                                         ------                     ------

    Financing activities

         Principal payments of debt                                                       (0.8)                     (7.5)

         Taxes paid related to net share
          settlement awards                                                               (4.1)                     (2.9)

         Excess tax benefit from share-based
          payment arrangements                                                                -                       0.2

         Debt issuance and financing costs                                                (1.0)                         -

         Net proceeds from financing under the
          New Market Tax Incentive Program                                                  7.6                          -

         Purchase of treasury stock                                                      (81.5)                   (165.2)

         Change in restricted cash                                                        (5.5)                         -

         Dividends paid                                                                  (12.0)                         -

            Net cash used in financing activities                                       ($97.3)                  ($175.4)
                                                                                         ------                    -------

    Effect of exchange rate changes on
     cash and cash equivalents                                                              0.7                      (2.4)
                                                                                            ---                       ----

            Net decrease in cash and cash
             equivalents for the period                                                 ($25.5)                  ($134.4)

    Cash and cash equivalents, beginning
     of the period                                                                        697.7                      957.3

    Cash and cash equivalents, end of the
     period                                                                              $672.2                     $822.9
                                                                                         ======                     ======

Appendix

In addition to reporting our financial information using U.S. Generally Accepted Accounting Principles (GAAP), management believes that certain non-GAAP measures (which are indicated by * 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 measures. Other companies may define the measures differently.

Free cash flow is defined as GAAP net cash provided by operating activities (cash flow from operations), less capital expenditures for property, plant and equipment additions. Management believes free cash flow provides investors with an important perspective on the cash available for shareholders, debt repayment, and acquisitions after making the capital investments required to support ongoing business operations and long term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. Management uses free cash flow as a measure to assess both business performance and overall liquidity.

Management considers special items, which may include termination charges, settlement charges and other items that arise from time to time, to be outside the ordinary course of our operations. Management believes that excluding these items provides a better understanding of the underlying trends in the company's operating performance and allows more accurate comparisons of the company's operating results to historical performance. Accordingly, Adjusted Free Cash Flow is defined as free cash flow less these special items.

The table below provides reconciliations between the GAAP and non-GAAP measures.


                               Free Cash Flow

                              ($ in millions)


                  First Quarter                     Guidance
                  -------------                     --------

                             2017              2016                            2017
                             ----              ----                            ----


     Cash
     Provided
     by
     Operating
     Activities              $112               $94                     $700 - $800

     Capital
     Expenditures            (41)             (51)           (250 - 300)
                              ---               ---             ----------

     Free
     Cash
     Flow                     $71               $43                     $450 - $500

     Cash
     Received
     under
     787
     Interim
     Pricing
     Agreement                  -             (43)
                              ---              ---


     Adjusted
     Free
     Cash
     Flow                     $71                $0                     $450 - $500

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SOURCE Spirit AeroSystems Holdings, Inc.